Insider trading refers to the buying or selling of a publicly traded company's securities by someone who has access to non-public information about the company. This information, known as inside information, may include details about the company's financial performance, upcoming product launches, or potential mergers and acquisitions.
Insider trading is illegal in most countries, including the United States, because it gives the insider an unfair advantage over other investors who do not have access to the same information.
How is it Done?
Insiders, such as company executives and board members, may engage in insider trading by buying or selling shares of their own company's stock. They may also tip off family members, friends, or associates to buy or sell shares based on the inside information they possess.
How can it be Prevented?
Insider trading can be prevented by implementing strict policies and procedures to ensure that inside information is kept confidential and not shared with unauthorized individuals. Companies can also implement surveillance systems to monitor trading activity and detect any suspicious activity.
Why People do it?
The motives behind insider trading can vary. Some insiders may engage in the activity for financial gain, while others may do it to support or manipulate the stock price of the company.
An example of insider trading is the case of Raj Rajaratnam, a hedge fund manager who was convicted of insider trading in 2011. He and his associates were found to have made over $60 million in illegal profits by trading on non-public information about companies such as Google and Intel. Rajaratnam was sentenced to 11 years in prison for his actions.
