Insider Trading
What is 'insider trading'?
Insider trading is having material information in regards to a company that is not available to the general public, and acting upon this information. This is as we've seen in the Martha Stewart case, where she allowed an individual to sell her stock and get out of the company prior to negative information that the public would have had, and therefore, she would have had a loss after that.
Is insider trading illegal?
Insider trading is illegal. It didn't used to be, but there used to be a lot of operations, and a lot of opportunities for any individual to operate on insider trading. A great example for that is with Ty Cobb. What people don't know about Ty Cobb, who was probably one of the greatest baseball player of all times, had inside information on a few very large companies and which made him very wealthy.
Is there any special statute that defines 'insider trading'?
There isn't any special statute which defines insider trading and that's done purposely. The SEC wants a very general and wide range to determine what they consider is being insider trading and not. That would be from shareholders to individuals themselves, to family members to friends - they leave that door wide open in regards to the action taken. These days it's a bit easier to determine whether or not someone acted on insider trading than it used to be, considering now that just about everything is electronic. The SEC has an ability to follow trades no matter how large or how small it is in regards to companies, where there is not ordinary activity.
Can I find out about insiders' purchases and sales of company securities?
You can find out about insiders' activities inside a company. If an individual owns more than 10% of a company themselves and they need to or want to do a trade, it needs to be disclosed. A good example of that is Bill Gates. Bill Gates sells off a certain percentage of Microsoft stock every single month, and that percentage is disclosed to the general public.
