Insider Trading

Overview of Insider Trading

Insider trading occurs when an individual who has access to non-public information about a security, makes a trade within that security.  Most of the public only thinks of insider trading as an illegal activity;  however, any form of trading by a corporate "insider" is considered insider trading.  The Securities Exchange Commission (SEC) provides clear direction on the roles within a company that are flagged as individuals that have access to non-public information, which could affect the price of the stock.  Some of these key roles are officers, directors, auditors, and corporate officers.  The SEC requires that a "insider" report their trading activities within a few days after the transaction. 

What is Insider Trading

Insider trading occurs when an "insider" attempts to profit on non-public information, or tells someone else non-public information in hopes of that associate making quick profits.  So, even if the insider themselves do not profit from the information, but passes on a "tip" to someone else, this is considered as illegal activity.

How To Prove Insider Trading

Attempting to prove insider trading has occurred is a challenge.  Many times there is no hard evidence to prove that someone is performed insider trading.  Many of the cases where defendants are found guilty is based on circumstantial evidence at best.  The SEC has monitoring tools and systems that look for suspicious volume and trading activity on the exchanges.  While this monitoring technology plays an active role in prosecuting insiders, the majority of evidence still originates from phone calls, looking at relationships between people, and the timing of the trades. 

Insider Trading Liability

Most Insider Trading cases are handled by the Department of Justice (DOJ).  The DOJ will attempt to penalize insider traders in two primary methods: (1) recovery of gains made and (2) a civil penalty up to three times the profit gained or loss avoided.

Popular Insider Trading Cases

Insider trading activities has become front and center in recent years with headlines from executives from Enron and Imclone.  One of the most notable cases involved Martha Stewart where the billionaire was convicted of selling $230,000 worth of Imclone stock in an attempt to avoid losing the money. 

Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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