Sometimes just trying to be friendly can get you into trouble.
“Insiders” aren’t just CEOs, COOs, financial officials, and other major shareholders. In most jurisdictions, an insider can be anyone who has access to material non-public information. Even you!
You know things about your company that outsiders don’t. Whether it is new product launches, new acquisitions, or financial details, some of this private company information could affect stock prices. And that means you have to be careful.
Insider information is any information not publicly available that affects the value or perceived value of the company. You might think you are being friendly by passing some of this information along—or even being a loyal employee by convincing others to invest in your company—but sharing insider corporation information is potentially illegal.
Stock markets reflect the trust and confidence in the economy that grows out of the government’s ability to maintain the fairness and integrity of trading. Illegal insider trading erodes that confidence and undermines the stability of our financial system. That’s why preventing illegal insider trading has become so important to public companies.
Things to Know
Insider information cannot be traded on or passed along to others for the purpose of trading in securities. You should carefully consider the impact that any disclosure of information could have.
1. You don’t have to be an employee of a company to possess insider information. Contractors. Spouses. Friends and family—anyone with access to insider information is forbidden from using that information to buy and sell securities.
2. There are severe consequences associated with violating insider trading laws. You can be personally fined and jailed for engaging in or contributing to insider trading. It is your responsibility to understand the rules and federal regulations against such activities.
Legal Insider Trading
Of course, this doesn’t mean you are forbidden from trading your own stock and securities. The decision of whether or not you can legally trade securities and stocks is based on two questions:
1. Is the trade based on non-public information?
2. Is the information material? In other words, would the disclosure of this information affect the value (or perceived value) of the company?
If you can confidently answer no to both of those questions—and are prepared to state that same answer in court—then you are OK to trade your own company stock. However, if you do decide to trade in your own stocks and securities, you must report these trades to the SEC within two business days.