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

A few weeks ago, our blog discussed how Phil Mickelson, one of golf's most recognizable names, was forced to cut a rather sizeable check to the Securities and Exchange Commission over allegations that he profited from, but did not actually commit, insider trading.

In keeping with this theme, today's post -- the first in a series -- will start providing some basic background information on the topic of insider trading. The motivation here is to help people outside of legal circles and the law enforcement community better understand one of the more frequently reported white collar crimes. 

What is insider trading?

It may come as a surprise for most people to learn that insider trading can occur both legally and illegally. Indeed, when corporate insiders trade (i.e., purchase or sell) their company's stock and file the necessary reports detailing these trades with the SEC, this is legal insider trading.

However, illegal insider trading occurs when corporate insiders breach their fiduciary duty by trading their company's stock or other securities using information that is both substantive (i.e., material) and not otherwise available to the public (i.e., confidential).

What is a fiduciary duty and to whom is it owed?

This is the strict legal requirement that fiduciaries (i.e., corporate insiders) put the interests of principals (i.e., stockholders) before their own. Simply put, this means fiduciaries have a duty to avoid conflicts of interest involving their principals, and are prohibited from profiting from this relationship in any capacity (absent express informed consent).   

Who is considered to be a corporate insider?

For the purposes of insider trading, those considered to be corporate insiders include directors, officers and anyone with control of 10 percent or more of a company's securities.

We'll continue this discussion in future posts, exploring some of the other contexts in which insider trading can occur and the circumstances in which insider trading will be treated as a criminal offense.

Consider speaking with an experienced legal professional as soon as possible if you are under investigation or have already been charged with any sort of white collar crime.  These are exceedingly complex criminal cases that require a thorough investigation and meticulous preparation. 

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Darryl A. Goldberg
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Chicago, IL 60602

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