Insider Trading

Insider trading refers to the buying or selling of publicly-traded Securities based on non-public, material information about the company. This practice is illegal in many jurisdictions, as it violates the principle of transparency and fairness in the Securities markets.

For instance, if a company’s CEO learns that a major product will be launched successfully and decides to buy Shares before the information is made public, this constitutes insider trading. Similarly, if an employee leaks confidential information about an upcoming merger, and an investor uses that information to profit, it is also considered insider trading.

Notable cases include:

• In 2001, Martha Stewart was involved in a scandal where she sold Shares of ImClone Systems based on non-public information she received from her broker, leading to her indictment for conspiracy and obstruction of justice.
• In 2012, Raj Rajaratnam, a hedge fund manager, was convicted for insider trading, having received tips about companies like Goldman Sachs, resulting in a significant financial gain.