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Are you familiar with the in and outs of insider trading? - II

Last week, our blog started exploring some basic background information about insider trading, a widely reported white collar crime that is often not fully comprehensible to those outside of legal circles and the law enforcement community. In today's post, we'll continue our efforts to answer any lingering questions about this somewhat arcane topic.

To recap, insider trading occurs when corporate insiders -- directors, officers or anyone with control of at least 10 percent of company securities -- breach their fiduciary duty to put the interests of shareholders first by trading their company's stock or other securities using material and confidential information.

What about "tipping" and insider trading?

It's important to understand that it's not just corporate insiders who can be charged with insider trading, but also friends, family members and other associates who are "tipped" to material, nonpublic information by corporate insiders that may affect the price of a company's publicly-traded stock.   

How can these individuals be charged with insider trading absent a fiduciary duty?

In the eyes of the law, any friend, family member or associate who is tipped to material, nonpublic information has the corporate insider's fiduciary duty automatically imputed to them. As such, they are legally prohibited from making any sort of trades based on this restricted information.

It's worth noting that in order for a tippee to be convicted, it must be shown that he or she either knew or should have known that the information on which they acted was privileged.

Are these the only examples of insider trading?

Outside of corporate insiders and tippees, insider trading cases can also involve a third class of defendants: those who misappropriate material, nonpublic information. By way of example, consider employees of brokerage firms, law firms, banking firms, etc. retained by corporations who come across this sort of information during the course of their work and use it to make stock trades, or similarly-situated government employees.

We'll conclude this discussion in a future post, examining the circumstances in which insider trading will be treated as a criminal rather than a civil offense.

From insider trading and embezzlement to money laundering and tax fraud, if you are under investigation or have already been charged with any sort of white collar crime, consider speaking with a skilled legal professional as soon as possible to begin preparing a strong defense.

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Darryl A. Goldberg
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Chicago, IL 60602

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