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A look at insider trading

Louisiana residents who invest in the stock market should be aware that there are some actions regarding the purchasing or selling of stocks that are illegal, such as insider trading. It's important to understand exactly what insider trading is, how it works and the penalties for taking part in the illegal behavior so as to avoid legal issues.

What is insider trading?

When individuals who have a fiduciary duty to an individual, corporation or other type of entity make investment decisions using information that is available to them due to their fiduciary duty and that cannot be accessed by the general public, they are said to have engaged in insider trading. The information allows them to make decisions to help them to earn profits or avoid losses.

There are also cases in which insider trading can occur when there is no fiduciary duty present. In these cases, another crime, like corporate espionage, has occurred.

Insider trading: A brief history

Insider trading was not always considered illegal behavior. According to one Supreme Court ruling, insider trading was a benefit of being an executive. Regardless, insider trading was finally banned after the extravagances of the 1920s, the deleveraging that took place in the 1930s and subsequent changes in public opinion.

Defending yourself against criminal charges

In order for the Securities and Exchange Commission to pursue an individual for insider trading, there are a number of factors that must first be examined. However, it is most important that the SEC is able to provide proof that the accused had a fiduciary duty to the company. It may also be necessary to show that the accused knew that there would be personal gain from selling or purchasing shares using the insider information.

An attorney who practices securities defense law may work to protect the rights of a client accused of insider trading. Depending on the factors of the case, litigation may be used to prove that there was no criminal intent.

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