Insider Trading - What Happens When You Are Involved in Insider Trading ?

What is insider trading ? 

Insider trading is the process of utilizing proprietary or insider information to manipulate the sale or purchase of financial instruments. 

An example of a financial instrument that can be manipulated via this method is currency exchange. 

An example of a financial transaction that may be manipulated through this method is a derivative such as a stock, futures, or index contract. 

A person who trades using nonpublic information can face criminal or civil charges alleging that insider trading took place.

Types of activities which are considered under insider trading 

There are three main types of activities that are commonly considered insider trading. These include: 

  1. leveraged trading, 
  2. naked trading, and 
  3. commodity trading. 

Each of these represents an illegal attempt to profit from the sale or purchase of securities within a market that has not been duly regulated. 

Additionally, there are some benefits derived from these transactions that go beyond simply monetary ones.

Story of 1st Policy violation in insider trading 

The first criminal offense relating to insider trading charges involves a violation of securities laws. 

In this case, the accused individual profits from the fraudulent sale or purchase of a security without the knowledge of the buyer or seller .

Criminal charges will usually involve a broker or other person who has access to the underwriters or other people involved in a transaction. 

This person can be charged with a misdemeanor for misrepresentation or a felony for fraud if it is determined that he or she broke the law.

Another way of insider trading 

Another way in which an insider trading charge can be brought forth is if an investor is guilty of trying to manipulate the price of securities in their portfolio. 

This can happen in a number of different ways. The most common method is to "tape" an offer to a broker before it is made known to the public. 

If the price is then set below the real value of the security, the investor will have been guilty of stock manipulation.

Insider information in insider trading 

Insider information is also brought up when talking about securities and insider trading. 

This refers to any instance where an investment company or individual insider has provided information to a broker or another party about the price or volume of a stock or other investment option. 

The most common use of this word is to pertain to stock options. These are a particular type of derivative that allows the purchaser or holder to buy shares at a pre-determined price in the future. 

While many people are familiar with the concept of stock options, few are familiar with the full meaning of the word.

Types of insiders ? 

Some people think that there are only two types of insiders - 

  1. those who are working inside the firms themselves and 
  2. those who are working for hedge fund managers or investment companies. 

However, this is not true. Public reports have shown that hedge fund managers have also been guilty of insider trading. 

It is possible for individuals to become more than "insiders" by working through third parties. 

This is often how brokers and investment companies get access to certain individuals and their ideas.

What would happen if you have caught in insider trading ? 

Many people wonder what kind of consequences they could face if they are found guilty of this type of trading. 

While civil penalties and other types of enforcement may occur because of the unauthorized trading of stocks and options, the main issue here is whether or not the trader acted in bad faith. 

With civil penalties, financial professionals can be forced to reimburse clients money they lost because of their own bad judgement in making trades.

Charges & penalties applicable when you got caught insider trading 

Criminal charges and other forms of enforcement may occur in different jurisdictions, depending on the country or jurisdiction in which the trading took place. Not every crime brings criminal consequences for everyone. 

Disclaimer :

The same goes for violations of anti-spamming laws, spam laws, and other types of legislation related to Internet fraud. If you are a victim of such a crime, it is important to consult with a qualified and experienced criminal defense attorney as soon as possible. 

The longer you wait to address the problem, the more you will suffer as a result of this type of market abuse.

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