insider trading investment & finance definition
Trading
by people who have access to material, non-public information that allows them
to make a substantial profit by either buying or selling the company’s
securities (usually stock). Insider trading is strictly prohibited by
securities law and violators are subject to large fines and jail time.
See insider trading in Wall Street Words
The illegal buying or selling of securities on the basis of information that is generally unavailable to the public. An example is the purchase by a director of shares of his or her firm's stock just before the release of surprisingly good earnings information.
Case Study In November 2001 the Securities and Exchange Commission charged 15 individuals with insider trading in the shares of Nvidia Corporation, a California maker of graphics chips. According to the SEC, in March 2000 Nvidia's president used e-mail to inform employees the firm had won a major contract to supply chips for Microsoft Corporation's new Xbox video game system. News of the contract was not announced to the public until five days following the employee e-mail. The time lag allowed the 15 individuals—11 employees plus 4 people tipped by the employees—to profit by purchasing Nvidia shares prior to the public announcement of the contract. The case was relatively unusual in that the individuals charged with insider trading were low-level employees rather than high-level executives.
Learn more about insider trading
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