Florida residents may not recognize how sharing or receiving a seemingly good stock tip may trigger criminal charges for insider trading.
Cornell Law School explains that insider trading may occur when someone trades a company’s stock or other securities on the basis of confidential information that is unavailable to the general public.
Understand what it means to be an insider
Someone is an “insider” under federal law if he or she serves as an officer or director of a company or controls at least 10% of the organization’s equity. Businesses must disclose trading by these insiders publicly or to the Securities and Exchange Commission. The law does not necessarily prohibit executives and shareholders from trading company equities, but they may face criminal charges for sales or purchases made on the basis of nonpublic information.
Law enforcement may also press charges against someone who misuses information to trade any company’s stock, whether or not the defendant was trading on his or her own company’s stock. If an insider shares business confidences with friends or others outside of the company, the people receiving the tip may face insider trading charges if they profited from a related trade and knew or should have known the proprietary nature of the information.
Watch for changes that may expand prosecutions
The New York Times reports that the U.S. House of Representatives recently passed the Insider Trading Prohibition Act. If this legislation becomes law, prosecutors may find it easier to pursue insider trading cases.
This proposed act would provide a specific and expansive characterization of insider trading and may open the door to prosecutions based on confidential information gathered through several types of unauthorized acts.