Insider trading, simply put, means that you use private information to influence your trading decisions. Most forms of insider trading are illegal, and most is easy to spot and avoid. However, there are certain situations where investors and businesses may not realize they are participating in this illicit activity. Whether you are purposefully trying to use insider information for your benefit or if you do it on accident, you can still be penalized with up to 25 years in prison. Follow these do and don’t tips to make sure that you are not participating in any type of insider trading:
- Do Be Confidential: Don’t share insider information. If you keep the information to yourself and don’t use it, it’s not an issue.
- Do Be Careful: Try not to ask questions that might cause someone to divulge insider information. Even if you’re not trying to get insider information, you can still get in trouble.
- Do Know Company’s Trading Policies: Before trading in your company’s or a closely allied company’s securities, double check the trading policies. The more familiar you are with the policies, the more likely you will avoid doing anything dubious or illegal.
- Do Stay Current: Trading laws can change. Make sure you stay current about trading laws and company policies. You can do this by working closely with a knowledgeable attorney.
- Do Educate Employees: As an employer, you are responsible for educating your employees on insider trading. Make sure they are all aware of what it is and how to avoid it.
- Do Know It’s a Federal Crime: Using insider information to change the price of a security is illegal. It is important for you to realize this because ignorance is not an excuse.
- Do Identify Culprits: If someone starts providing you information that you know causes a breach of contract, let them know that what they are doing is illegal.
- Do Report: If you receive information that you can’t find publicly, report it to the proper authority right away. This will show that you have no dishonest intentions.
- Don’t Trade: You should never trade securities using insider information. You just shouldn’t do it. It’s illegal and will likely get you in a lot of trouble.
- Don’t Use Hot Tips: Using someone’s tips about their company is just as illegal as using information about your company. When it comes to trading, stick to public sources.
- Don’t Repay Favors: Repaying favors with insider information is inappropriate. Don’t offer private information in payment for a favor done for you or your business. It’s still illegal.
- Don’t Talk With Family: You want to keep insider information confidential, even when it comes to family and close friends. Confidential information regarding your place of employment is inappropriate under all circumstances.
- Don’t Recommend: If you recommend a trade without giving information as to why you recommended it, that is still considered insider trading. That means that you simply shouldn’t make a recommendation based on insider information.
- Don’t Lie: Giving out false information that others might take to be an insider tip is also something you should avoid. Don’t try to inform or mislead people.
- Don’t Try: If you look for clever ways to use insider trading, you should know that the United States government and the Securities and Exchange Commission (SEC) have more clever ways dedicated to catching insider traders.
- Don’t Trust Just Any Source: Always check sources. If someone gives you some information about a trade, try to find that information from a public source. If you can’t, it’s likely insider information that should not be used. Insider trading is an illegal activity with big consequences.
Use the above do and don’t tips to make sure that you avoid this type of business practice.
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