The origins of the Dirks Test
The 1983 Supreme Court case Dirks v. SEC created the Dirks Test. This case determined that disclosing material nonpublic information that facilitates a beneficial inside trade is enough for someone to be liable for illegal insider trading. The test determines whether family and friends or strangers received tips. The cases have different treatment.
Sharing material nonpublic information
You could be guilty of insider trading if you share advance information about an upcoming earnings report, a stock split, merger or acquisition or an upcoming public offering. Sharing advance information regarding a Food and Drug Administration decision about a new drug is also a no-no.
You do not have to be a company employee
Friends and family with information may be guilty of insider trading. If they disclose it, they can have the charge of committing an illegal act, considered under white collar crimes statutes.
Although they may not be directly involved, a tipper may be guilty. They could receive “consulting fees” in the form of a large amount of money. If aren’t sure about whether information that you’re receiving is legitimate, it may be a good idea to consult a professional so that you don’t unknowingly violate any laws.