One of the biggest reasons to consult with a lawyer is when you have questions about insider trading. It's a very loaded concept, and you'll want to make sure you land on the right side of the law before your sell shares or communicate actionable information. These four items are some of the most basic things a securities law attorney will tell you about the topic.

Who is Legally an Insider?

Insiders are primarily classified as two groups of people. There are officers, directors, and other people with access to the firm's actionable information. This is data that tells people what direction the company's stock is likely to trend once it becomes public, such as earning reports, pending mergers, or one-time charges.

The second group includes anyone who owns 10% or more of the company's equity securities, such as shares of stock. These folks are presumed to be insiders even if they don't have access to specific information because they control enough of the company that insiders would take their calls and reply to their emails pretty quickly.

Notably, anyone who learns this information, even if they have no ties to the company, is considered subject to the same rules. For example, a reporter who accidentally receives earnings data in advance of its public announcement date would be obligated to not share it or trade on it.

Penalties

Assigned penalties for insider trading start at three times the profits acquired from the trade. Depending on the laws that were believed to be broken, there is also the possibility that criminal charges may arise from fraudulent activity, such as pumping the stock, or failures of fiduciary obligation — essentially not looking out for the best interests of the company, its shareholders, the public, and other stakeholders.

What Counts as Insider Activity?

Tipping is the most common form of modern insider trading. This means discussing things with friends and colleagues in a way that lets them know what the information is. All insiders have a fiduciary duty to keep this information on lockdown until the public release date for it has passed.

Avoiding Charges

Your first order of business is to talk with a securities attorney to learn whether you're considered an insider. If you are, you can still trade equities, but there are strict rules. Insiders should submit requests to buy or sell equities outside the protected windows for privileged information. For example, an insider might file to sell shares after a dividend announcement has been made.

For more information, contact a firm that deals in corporate law such as Carter and West Law Firm.