Securities law in Altoona, Pennsylvania, helps regulate the buying and selling of stocks, shares, bonds, and other investments to prevent fraud. Congress enacted these laws in 1933 after the stock market crash of 1929. A common breach of securities law includes insider trading, which commonly involves stocks.
Definition of insider trading
Insider trading refers to making stock trading decisions based on having access to nonpublic information. For example, if a trader learns a company is going bankrupt before the public, they may quickly sell the stock. This gives the trader a benefit over other traders who did not know this information.
Insiders are commonly people who work in a business, but they could also be a relative of the employee. Technology has made it more possible for hackers to access private information, but the newer technology has also helped the Security Exchange Commission catch fraud. A person doesn’t have to trade stocks to get charged with insider trading.
The SEC investigates and discovers insider trading using a surveillance system. If the SEC finds something abnormal, they request warrants for wiretaps and financial records.
How to avoid insider trading charges
Traders who get inside information should keep it confidential, which includes not telling family, and never ask questions that may prompt revealing such information in violation of securities law. Traders should review their company’s trading policies and stay current on them, and companies reduce their risk of insider trading by educating employees.
A public search of insider tips could reveal if they are insider information. If they report insider information they can’t find publicly to authorities, it could help show they never had bad intentions. A large number of successful exchanges before corporate events or the information has been made public sends a red flag to the SEC.
Common penalties for violating securities law include a maximum fine of $5 million and up to 25 years in prison. While the prosecution may have difficulty proving the case, the defendant still needs a defense team.