One of the key legal concepts that every business professional should understand is the concept of insider trading. This form of trading involves individuals who have special access to information, such as company directors and officers, who then use this knowledge to gain a benefit or an advantage in the securities market.
Simply put, when someone is found to have traded on inside information, it is deemed as a breach of trust and an illegal act. This is because those who have access to inside information are in a position of trust and it is seen as an abuse of that trust to gain inappropriate financial benefits from this knowledge.
The penalties for insider trading can be severe, with fines, criminal convictions and jail time possible for those found guilty of such acts. To protect themselves and their business, it is important for business professionals to understand the concept of insider trading and to be aware of the laws and the potential consequences of engaging in this type of activity.
Examples of Insider Trading
In 2013, a high-profile case of insider trading saw the arrest of a hedge fund manager, a Goldman Sachs board member and six other individuals. In the end, those charged pleaded guilty to all schemes and in the case of the hedge fund manager, received an 11 year federal prison sentence. The case showed the serious consequences that can come with insider trading.
A more recent case in 2018 saw former pharmaceutical executive, Martin Shkreli, convicted of security fraud and conspiracy to commit security fraud. He was found guilty of insider trading for using information he had access to through his company to buy and sell certain stocks and to defraud investors who had given him money.
Protecting Against and Preventing Insider Trading
The best way to protect yourself and your business from the risks associated with insider trading is to put in place policies and procedures to ensure that all employees who have access to confidential information, such as company executives, are educated on the laws surrounding insider trading. The company must emphasise to everyone involved that any trading on inside information is not permitted and that it is a violation of the law.
Having a clear policy that outlines the punishments for anyone who is found guilty of insider trading, as well as the procedures for reporting any potential cases of insider trading, will help to ensure that all relevant personnel are aware of the risks and that they have a means to report any potential breaches.
Conclusion
Insider trading is an illegal activity that can result in serious financial losses and legal consequences for those found guilty of such activities. Business professionals should be aware of the laws surrounding insider trading and take measures to ensure that personnel with access to sensitive information, such as directors and officers, are educated on the risks associated with such activities.