Passing inside information could get you in trouble

Chuck Smith Attorney at Law

Insider trading is a crime involving the use of inside information about companies to make stock trades before the release of that information to the public. However, you do not have to actually buy or sell stocks based on inside information for law enforcement to charge you with insider trading. Simply passing non-public information to other parties who use it to make trading decisions can get you in trouble with the law.

Marketwatch explains that law enforcement can and has levied charges on individuals for passing inside information along to other people. In the recent case of Congressman Chris Collins of New York, federal law enforcement charged him with securities fraud in part because law enforcement alleged that he had given his son inside tips that prompted him to sell almost a million and a half shares.

Law enforcement has charged people for passing insider tips in a variety of ways. In one case, the SEC alleged that an insider trading scheme was taking place in New York at the Grand Central Terminal. A law clerk with access to sensitive financial information at a law firm passed tips to a friend who conveyed it to a broker. The men involved wrote the information on napkins or small notes.

Another case of passing inside information involved a therapist. State laws and ethics codes require that therapists not disclose information that their patients tell them. However, while receiving therapy during a session, a patient told a therapist about a merger soon to take place between two public companies. In 2017, the SEC charged the therapist with disclosing this information.

These examples illustrate how seriously law enforcement takes the disclosure of non-public information about companies. Some people may randomly or mistakenly encounter sensitive information and have no desire to use it for insider trading or to give it to other people. People in this position may still face legal trouble and will likely need a strong legal defense to represent them.

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