Trading Places

Insider trading is defined as the buying or selling of company stock or securities for a profit based upon information that is not readily available to the public.   A key distinction in this definition is the acquisition of “material nonpublic information.”

When a person engages in insider trading, it can be classified as a non-aligned employee workplace crime. With non-aligned employee crimes, the sole intention is for the individual to receive personal gain. These crimes are much more likely to be committed by employees at higher levels of the organization, such as managers and executives, because they have access to private company information and resources. 

Material nonpublic Information is information that is material (i.e. important or of consequence) that is not publically available.  This type of information is usually obtained by employees, managers, officers or other agents of an organization during the performance of their day-to-day duties. These people are known as insiders because they are inside the company. 

For example, imagine you are an accountant at a company. Through performing the duties of your job, you learn that one of your clients exceeded their profit expectations over the previous quarter before the client announced that information to the public. This information would qualify as nonpublic information. As an agent of the company, you have a  fiduciary duty, or legal obligation, to act in the best interest of the company and the clients your company represents. This includes keeping material nonpublic information inside the company.  Using your knowledge of the client’s exceeded revenue for your own personal profit by buying shares in anticipation of the stock price going up before the next quarterly report is released constitutes insider trading and is deemed illegal.