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Insider Trading
Prevent insider trading at your company with the effective Think Twice videos, which educate, entertain, and jolt

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SEC Law: Insider Trading


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Articles (Jump to FAQs)

Prevent A Martha Stewart Moment: Insider Trading In Your Company's Stock

Bruce Brumberg
It is all too easy to forget the insider-trading rules if you suddenly see a chance to profit or avoid loss through a simple stock trade. The well-publicized case against TV celebrity Martha Stewart presents valuable lessons that are more important than ever in our age of stock market volatility and Wall Street scrutiny.

How Executives And Directors Can Avoid SEC Troubles Before Trading Their Company Stock
(Part 1)
This is premium content

Merrill Freed and Steven Schraibman
Your advisors say now is the time to buy or sell your company stock or to exercise options. But before you proceed, you'd better understand the securities laws that apply. Otherwise, you risk losing your profits, paying big fines, attracting unwanted media attention, and perhaps even going to jail. The storm of controversy over the backdating of stock option grants shows how closely executive stock sales are scrutinized.

Insider Trading Prevention & Education This is premium content

Bruce Brumberg
myStockOptions.com
Editor-in-Chief Bruce Brumberg developed this PowerPoint presentation for talks and meetings on the prevention of insider trading. (Premium members can view the presentation in PDF and may request permission to use it at their companies.)

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FAQs (Jump to articles)

What is insider trading? Do you have to be an "insider" or executive to commit it?

Insider trading is illegal. It occurs when someone...

What is insider tipping?

Tipping is telling someone material confidential information about a public company, whether in...

Why are insider trading and tipping illegal?

Insider trading and tipping violate the concept of fair capital markets...

How do civil and criminal insider-trading cases differ?

Most insider-trading cases involve civil suits and penalties...

What are the civil penalties for insider trading?

Anyone found liable for trading on inside information must pay the federal government...

What are the criminal penalties for insider trading?

Under Section 32(a) of the Securities Exchange Act, as amended by the Sarbanes-Oxley Act of 2002, individuals face up to...

Can I receive a bounty for providing information about someone who has committed insider trading?

Under Section 21A(e) of the Securities Exchange Act, the SEC may award...

Aren't my stock-trading records confidential? How could the stock exchanges and the SEC get them and other information about me? This is premium content

To detect irregular patterns of trading, each stock exchange uses a surveillance operation...

Do the rules of insider trading and tipping apply only in business contexts? Do they also apply to what I tell friends and family? This is premium content

The rules apply to any confidential, important information that you reveal to anyone about your company. The SEC adopted...

Does it matter whether the person who violates the insider-trading laws lives outside the US? This is premium content

The SEC has reciprocal agreements with many countries...

Is there any risk of violating the insider trading or Section 16 rules after I leave the company by exercising options or selling company stock? This is premium content

The rules do not apply only to trades in your company stock while you are working for the company...

Do Rule 144, Section 16, and the insider-trading rules apply to gifts and donations of company stock by senior executives or directors? This is premium content

Not surprisingly, anything you do with your company stock as an executive or director raises issues involving the securities laws, potential SEC reporting requirements, and liability risks...

My company's stock price has substantially dropped. As an executive, I want to buy the stock on the open market to show confidence to investors and analysts. Do I still need to worry about insider trading and liability for short-swing profits under Section 16? This is premium content

Yes. Your intentions do not matter under the securities laws. You cannot...

What if at the time of sale I possessed inside information that did not affect my decision to sell? For example, what if I decided months before to exercise and sell stock when the stock price reached a certain point? This is premium content

The law is evolving on this question of "use" versus "possession" of information. The SEC adopted rules in late summer 2000, but they are untested...

Will the SEC really investigate and prosecute small insider-trading violations? This is premium content

When irregular trading activity is detected in a company's stock, all transactions made during the period under review are scrutinized...

With insider trading, do I need to be caught in the act to be investigated or prosecuted?

No. Unless someone who is part of a scheme confesses, as in the movie Wall Street, direct proof rarely emerges...

Is lying during an SEC investigation a crime? This is premium content

Yes. A witness who lies under oath...

Can a grant of stock options be an insider-trading violation? This is premium content

Generally, no violation occurs if you receive a grant of stock options when you know secret stock-price-moving information about your company. However, the SEC has focused severely in recent years on...

Can the exercise of stock options be an insider-trading violation? This is premium content

If you exercise stock options when you know secret stock-price-moving information about your company, the exercise itself is not a violation, according to most experts. However, selling the stock at exercise, as in a cashless exercise/same-day sale, when you know confidential information about the company would almost certainly be considered insider trading. Examples...

Can a purchase of shares through an ESPP ever be considered insider trading? This is premium content

Generally, there is no violation for the enrollment at the start of the offering period or for the...

If I know something important about our company or another one, when can I use that information to trade? Does the window period always tell me when? This is premium content

After the information is publicly disclosed, you should wait a reasonable amount of time for...

What are "blackout periods" and "window periods"? This is premium content

Blackout periods are times when you are prohibited from trading your company's securities, and window periods are times when you are allowed to trade. Some companies also prohibit...

How do blackout periods affect my ability to sell shares? This is premium content

To prevent insider trading, most companies adopt rules that stop all employees from trading during certain periods. This means that...

How do blackout periods affect stock option exercises and the tax treatment? This is premium content

Most companies do not prohibit exercises of stock options during blackout periods (but see an exception). However, you need to be careful about...

If my restricted stock vests during a blackout period or when I know secret stock-price-moving information, can I be charged with insider trading? This is premium content

You cannot be charged just for the vesting of restricted stock, as no sale of securities occurs. However...

Can I commit insider trading by buying or selling company stock in my 401(k) when I know important, confidential information? This is premium content

Whether you trade your company stock in your regular brokerage account or in...

Does insider trading include buying stock in a supplier or a customer of my company and not in my own company? This is premium content

Wrongly using information you learned on the job to buy stock in another company is still insider trading...

Can an insider-trading violation bar me from serving as an officer or director? This is premium content

Courts have the authority to bar you from corporate office or directorship if your conduct demonstrates...

Can I sell my company stock through a blind trust, or another type of trust, as a defense against insider trading? This is premium content

Using a blind trust goes beyond the protections of Rule 10b5-1 plans, yet has more restrictions. These are irrevocable grantor trusts with...

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