Due to a variety of factors, the federal government is cracking down hard on those suspected of illegal insider trading. However, there can be a very fine line between white collar crime and legal business practices. As a result, it is critical for those who may be vulnerable to such accusations to have a sound understanding of what constitutes legal and illegal trading practices.
Essentially, financial employees must guard against any perception that they have unfairly profited from information not yet disclosed to the public about the financial status of their employer but that should be public knowledge due to the nature of the information and the impact that it will have on shareholders. Of course, the ins and outs of illegal insider trading are far more complex than this simple answer. However, it provides a good quick reference and rule of thumb to abide by.
More specifically, financial employees should take care to understand and abide by S.E.C. Rule 10b5-1 when trading in their own company's shares. Sticking to the specific provisions contained in this rule will help insider trading remain legitimate and free of negative consequences later on. In order to remain free of negative scrutiny, financial employees should simply avoid trading when they have access to influential insider information and may affect the timing and amount of trading done as a result.
However, it is important to note that recent S.E.C. initiatives are targeting those who would seek to manipulate Rule 10b5-1 in order to adhere strictly to the law while violating its spirit.
When it comes to legal insider trading, financial employees would do well to heed the following piece of advice: be careful.
Source: New York Times Dealbook, "The Fine Line Between Legal, and Illegal, Insider Trading," Peter J. Henning, Dec. 10, 2012
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