Insider trading is one of the most commonly known forms of securities fraud. This type of securities fraud achieved wide-spread notoriety with the SEC’s insider trading crackdown in the 1980s and inspired the movie “Wall Street.”
Illegal insider trading occurs when individuals who are provided with confidential information about a company take advantage of that knowledge by buying or selling stocks to reap profits or avoid losses. This practice can directly harm other investors who buy or sell stockwithout the advantage of “inside” information.
Illegal Insider Trading: Who Is Involved?
The SEC has taken disciplinary action for illegal insider trading against a variety of individuals and entities, including:
- Corporate officers, directors, and employees who traded their
company’s securities after discovering important and confidential
- Friends, family members, and other “tippees” of company officers,
directors, and employees, who traded securities after receiving material
and non-public information;
- Employees of law, banking, brokerage and printing firms who were given
such information to provide services to the company whose securities
- Government employees who learned of such information because of their position; and
- Other persons who took advantage of confidential information about securities.
Insider Trading: The Martha Stewart Case
One of the best known cases of insider trading involves homemaking celebrity Martha Stewart. Martha Stewart was an investor in the biopharmaceutical company ImClone; in December 2001, stock in ImClone plummeted following the FDA’s rejection of its new cancer drug. While many ImClone investors suffered significant financial losses after this event, Martha Stewart was not among them.
Just one day before the FDA’s announcement, Martha Stewart had sold around $230,000 worth of ImClone stock. The SEC filed securities fraud charges against her alleging that she committed illegal insider trading when she sold ImClone stock after receiving a tip from her stockbroker.
Martha Stewart was found guilty and sentenced to five months in prison, five months of home confinement, and two years probation for lying about a stock sale, conspiracy, and obstruction of justice.
Girard Gibbs encourages persons who know about possible securities violation to contact the firm. Under the SEC whistleblower laws promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act, whistleblowers may be receive a reward of up to 30 percent of the recovery for information leading to a successful enforcement action by the SEC and are protected from employer retaliation. If you believe that you have information about a securities violation, please contact us at 866.981 4800 or by filling out the form at the right.