Insider trading is a legal concept that even those well-versed in the law sometimes have trouble understanding. It is tricky because there are so many aspects that could make anyone guilty of the crime. Simple actions you feel are honest and legal may actually be insider trading if you are not careful.
According to The Street, the basic definition of insider trading is when you share information not known to the public with someone who then uses it to make trade decisions. There are several elements to this crime that shape what constitutes being guilty of it. You need to understand each of them to avoid accidentally becoming guilty of it.
The information at the heart of the insider trading must be private. It cannot be something that the public knows about at all. It must be secret information that you could only get if you had direct knowledge or access to someone with direct knowledge of a company’s future actions or situation.
After getting the information, you must act on it by making trade decisions. This may mean that you sell or buy stock based on what you know or that you give information to a friend and that person buys or sells stock.
When you or another person makes your trade decision, it must be the direct result of the private information. This means that you specifically sell or buy stock because you get this information. However, all the prosecution must prove is that you knew the information because the court will assume knowing the information caused your actions.
It is easy to accidentally commit this crime because you do not need to know you are doing something illegal. You do not even have to know that the information you received was not public. Just knowing the information and then acting on it makes you guilty.