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It is considered a criminal offense in most cases under the theory that it is not fair to investors who do not have the benefit of ?inside? information. Unlike many types of investment fraud, insider trading does not target individual investors as victims.
Insider trading is a white-collar crime that is often prosecuted as a felony. It's no wonder that the punishment for illegal insider trading often includes jail time and steep fines.
Burden of Proof in Insider Trading Cases The government must prove that a defendant bought or sold one or more securities ?on the basis of material nonpublic information about that security or issuer,? ing to the SEC's Rule 10b5-1, 17 C.F.R.
The SEC monitors insider trading in various ways. For example, it uses market surveillance systems to monitor trading volume. If no new public information has been issued, but trading volume rises substantially, it raises a red flag. Additionally, the SEC responds to tips and complaints about illegal activity.
An insider is generally someone who has routine access to material undisclosed information concerning a reporting issuer and significant influence over the reporting issuer.