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Insider Trading
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SEC Law: Insider Trading

Why are insider trading and tipping illegal?

Insider trading and tipping violate the concept of fair capital markets. A bearer of secret inside information who trades on it has an advantage that other investors do not. Stock markets would lose credibility if a minority of privileged investors had advantages over the huge population of ordinary investors, who might then abandon the markets, leading to dire economic consequences. Furthermore, illegal trades often involve proprietary information that was stolen or passed to others in clear violation of company rules and fiduciary duties.

While greed is often a factor in many cases of insider trading and tipping, there are sometimes other reasons. An article in Fraud Magazine looks at the various factors that may lead someone to engage in illegal trading or tipping behavior.

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