Insider Trading is when you have access to information about a company that is not available to the public. With the help of your inside knowledge, you engage in trading of stock or securities. This includes inciting, inducing or encouraging another person to engage in trading of stock or securities.
Given the serious nature of Insider Trading, it will usually be dealt with in the County Court as an indictable offence.
Examples of Insider Trading
- The CEO of a company finds out that the company is going to be taken over. The takeover has not yet been publicly announced. The CEO gets his wife to buy shares in the company knowing that the share price is likely to rise.
- A stock broker hears from his friend that the share price of a listed company is going to drop because the company is in serious debt and needs to liquidate its assets. Before liquidation of the company is public, the stock broker tells his clients to sell all their shares in the company.
What is the legal definition of Insider Trading?A person trades in financial products while in possession of ‘inside information’. And knowing or they ought reasonably to have known that they were in possession of inside information at the time. If a person passes on ‘inside information’, they can also be liable under insider trading laws.
“Did you engage in insider trading?”
LegislationThe law for this offence can be found in division 3 of the insider trading prohibitions of the Corporations Act 2001.
- There was no insider trading.
- The information is generally available to the public.
- The person you are alleged to have influenced in insider trading, already had access to that information through public means.
Questions in cases like this
- Did you have access to inside information?
- When did the information become publicly available and when are you alleged to have engaged in insider trading?
- Did you engage in trading based on this information?
- Can they prove your trading was based on inside information?
- Did the person you are alleged to have influenced to engage in insider trading already have access to this information through public means?
Insider trading (division 3 of the insider trading prohibitions of the Corporations Act 2001) is a serious offence which attracts a maximum sentence of 15 years imprisonment.