# Insider trading question **URL:** \ **Category:** Factual Questions\ **Created:** [September 17, 2006, 3:35pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072 "2006-09-17T15:35:36Z")\ **Posts on this page:** 6\ **Page:** 1
**Author:** ![Skald\_the\_Rhymer](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Skald\_the\_Rhymer](https://boards.straightdope.com/u/Skald_the_Rhymer)\ **Post date:** [September 17, 2006, 3:35pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/1 "2006-09-17T15:35:36Z")
Suppose that I, a private citizen, chance to come into possession of sensitive and properly confidential corporate information through no action of my own; I overhear a conversation at Starbucks, or get accidentally CCed on an important email, or something similar. However it happens, I discover that Company X is about make an announcement that will cause its stock price to drop precipitously. I happen to own 1,000 shares of Company stock that I bought at $25 a share a year ago; it is currently valued at $75 a share, but may well drop to junk status once this announcement is made. If I dump my shares, have I committed insider trading? ---
**Author:** ![Sage\_Rat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/sage_rat/32/399_2.png) [@Sage\_Rat](https://boards.straightdope.com/u/Sage_Rat)\ **Post date:** [September 17, 2006, 3:43pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/2 "2006-09-17T15:43:14Z")
According to the Wikipedia, it would appear not. And really that does seem to make the most sense, just as otherwise you would need to take thousands of people to court if some information was leaked to a newspaper and everyone traded on it before it was official. > [@Wikipedia on Insider Trading](#): > > According to the U.S. SEC, corporate insiders are a company’s officers, directors and any beneficial owners of more than ten percent of a class of the company’s equity securities. Trades made by these types of insiders in the company’s own stock, based on material non-public information, are considered to be fraudulent since the insiders are violating the trust or the fiduciary duty that they owe to the shareholders. The corporate insider, simply by accepting employment, has made a contract with the shareholders to put the shareholders’ interests before their own, in matters related to the corporation. When the insider buys or sells based upon company owned information, he is violating his contract with the shareholders. > > […] > > Not all trading on information is illegal inside trading, however. For example, while dining at a restaurant, you hear the CEO of Company A at the next table telling the CFO that the company will be taken over, and then you buy the stock, you wouldn’t be guilty of insider trading unless there was some closer connection between you, the company, or the company officers. ---
**Author:** ![dalej42](https://avatars.discourse-cdn.com/v4/letter/d/67e7ee/32.png) [@dalej42](https://boards.straightdope.com/u/dalej42)\ **Post date:** [September 17, 2006, 6:56pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/3 "2006-09-17T18:56:22Z")
[Here](http://www.sec.gov/answers/insider.htm) is what the SEC says about insider trading. You may very well be trading illegally on that information. As a practical matter, the SEC isn’t going to be concerned with a 1000 share transaction. If you decided you want to short millions of shares based on this information, that might be a problem. I’m not a lawyer, but I’ve been studying for my NASD license. ---
**Author:** ![MEBuckner](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/mebuckner/32/2896_2.png) [@MEBuckner](https://boards.straightdope.com/u/MEBuckner)\ **Post date:** [September 17, 2006, 7:32pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/4 "2006-09-17T19:32:33Z")
**Moderator’s Note:** Pssst. I’ve got a hot tip that this thread is about to moved to General Questions. So you should buy. Or sell. Whatever. ---
**Author:** ![Cliffy](https://avatars.discourse-cdn.com/v4/letter/c/59ef9b/32.png) [@Cliffy](https://boards.straightdope.com/u/Cliffy)\ **Post date:** [September 17, 2006, 9:15pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/5 "2006-09-17T21:15:51Z")
I’m not _convinced_ that Wikipedia is right on this; while certainly the violation of the fiduciary duty is part of the reason insider trading is prohibited, it’s not the only reason. The other consequence to insider trading is that an innocent purchaser is going to get screwed when the OP dumps his shares, even though the purchaser has no opportunity to have the gleaned full information, no matter how diligent he is. Of course, the SEC typically takes a hard line on what is a violation, and their interpretation of the securities acts is not always upheld in court. Plus, these cases are tried in front of juries, who have sometimes been unwilling to follow the Commission on the close cases. (A couple years ago I wrote a short article about that, actually.) Note that there are some areas that have even more expansive definitions of what is a violation. For example, if you get secret information about a tender offer, it’s probably illegal to trade on it even if you got it thru purely innocent means. –Cliffy ---
**Author:** ![OldGuy](https://avatars.discourse-cdn.com/v4/letter/o/3bc359/32.png) [@OldGuy](https://boards.straightdope.com/u/OldGuy)\ **Post date:** [September 17, 2006, 9:19pm UTC](https://boards.straightdope.com/t/insider-trading-question/373072/6 "2006-09-17T21:19:54Z")
[QUOTE=dalej42] [Here](http://www.sec.gov/answers/insider.htm) is what the SEC says about insider trading. You may very well be trading illegally on that information. I’m not a lawyer, but I’ve been studying for my NASD license. [/QUOTE] IANAL, but your cite does not read like this. The original poster is talking about something overhearing a conversation. “Tipping” as used here means the information was deliberately given to him. The closest example I am aware of that looks perhaps innocent like this, but was deemed insider trading, were the various printer employees of financial disclosure doncuments who were found guilty. [http://www.boston.com/business/articles/2006/04/12/insider\_trading\_ring\_reaped\_millions\_sec\_says/](http://www.boston.com/business/articles/2006/04/12/insider_trading_ring_reaped_millions_sec_says/) > **[News Archives](https://www.findarticles.com/news/)** > > Explore the News Articles featuring Technology, Business, Entertainment, and Science & Health topics. Access reports, insights, and stories. [http://daytrading.about.com/b/a/257444.htm](http://daytrading.about.com/b/a/257444.htm)