The public policy behind insider trading laws is that those privileged with confidential information should not be allowed to use the special knowledge to gain profits or avoid losses on the stock market, to the detriment of the corporation and to investors who do not have the advantage of the “inside” information.
Under securities laws, it is unlawful (1) to trade with material nonpublic information or (2) to disclose material nonpublic information to another person for trading.
Examples of material information include: (1) earnings estimates, (2) management changes, (3) pending mergers, (4) product performance testing results.
Information is nonpublic until it is: (1) widely disseminated, (2) absorbed, or (3) evaluated, by the public.
The consequences of violating insider trading laws include: (1) civil penalties, and (2) criminal penalties and jail time.
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