Insider Trading
The buying or selling of a company's securities by someone with access to material non-public information about the company, which is illegal in most circumstances.
What is Insider Trading?
Insider trading refers to transactions in a company's securities — stocks, bonds, or derivatives — conducted by individuals who possess material, non-public information (MNPI) that would likely affect the security's price if disclosed to the public. Company executives, directors, employees, and their associates are subject to strict regulations limiting when and how they can trade their company's securities. Illegal insider trading erodes public trust in fair markets, distorts prices, and harms ordinary investors who trade at an informational disadvantage. The SEC vigorously prosecutes insider trading using surveillance technology and tip-offs. However, not all insider trading is illegal: company insiders may legally buy or sell their own company's shares if they follow SEC disclosure rules (Form 4 filings) and observe required blackout periods.
Example
In 2022, a former Amazon employee and his associates were charged with insider trading after using confidential information about upcoming Amazon acquisitions to purchase stock in target companies before the deals were publicly announced. The scheme netted approximately $1.4 million in illegal profits before SEC detection through trading pattern analysis. The case illustrated how surveillance of unusual options and stock activity ahead of merger announcements is a primary tool for detecting insider trading.
Source: SEC — Insider Trading