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What is insider trading?

Some residents of the Indianapolis area who pay attention to the news may from time to time hear stories about how a high-powered business executive or even a wealthy individual who happens to invest gets netted in allegations of insider trading. Unfortunately, a person does not need to be a high-roller on Wall Street to be at the center of insider trading allegations. Contrary to what might be a popular image, insider trading does not need to involve "cooking books," shredding documents and the like. It can happen in the course of behavior that, on the surface, is as innocent as a phone call to a friend.

Speaking generally, insider trading is a form of self-dealing. Someone who is in a position to know confidential information about a publicly traded business or other regulated financial security ordinarily has an obligation to use that information for the best interest of the company, which includes the average investors who are playing by the rules.

The self-dealing occurs when that trusted person instead uses that information to buy or sell shares in that business as their privileged information dictates. Insider trading can also happen when a person shares the information with others, such as a friend, relative or even someone willing to pay for the information. The person receiving the funneled information can also be accused of insider trading.

For its part, the federal government takes insider trading very seriously. They do not see it as just a person pressing an advantage to turn a buck. Rather, authorities see insider trading as something fundamentally unfair, a practice that, if tolerated, can ruin the free market financial system. They therefore will prosecute insider trading as a serious white collar crime.

In some cases, a person accused of insider trading may have really made an error in judgment. However, in other cases, the person did nothing illegal or, at worst, engaged in innocent conduct that looks bad. In either case, having a thorough and vigorous criminal defense is important.

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