If you work for a publicly-traded company that has enjoyed some great successes over the years, you may already be vested in this company's future profits through available stock options, profit-sharing plans, or a fully-funded pension. However, for those who have such confidence in their employer's future that they wish to capitalize on this by making some stock trades, media allegations of "insider trading" for some corporate moguls may be worrisome. What can you do to benefit from your company's successes without running afoul of securities laws? Read on to learn more about the ethical and legal rules that can bind you.
What is insider trading?
While this term is often associated with white-collar crime, there are several types of insider trading that are completely legal. If you've already executed a purchase or sale order (or have a contract to purchase or sell shares of your company stock on a regular basis), and then learn some non-public information that may affect the stock price, you'll have an affirmative defense against any potential charges by arguing that these transactions were already in place before you learned the non-public information.
However, purchasing, selling, or otherwise manipulating a company's stock when you have "insider" or non-public knowledge that could affect the stock's value is classified as illegal insider trading and could be punishable by steep fines or even a federal prison sentence. For example, if you find out that a patent your company has applied for has been approved and then buy thousands of shares of your company's stock -- anticipating that the stock's price (and therefore your investment) will skyrocket once this information has been made public -- you've likely engaged in illegal insider trading.
Insider trading can also involve massive sales or "dumping" of stock when you find out information that could negatively affect its price, like a product recall or pending bankruptcy. Any purchase or sale transactions made too close to a public announcement that affects a stock's price can be looked upon suspiciously by federal securities regulators.
How can you trade your company's stock without running afoul of securities regulations?
There are a few steps you can take to ensure that all your transactions involving company stock are legal and above-board.
First, if you regularly purchase company stock (whether through your 401k, an IRA, or taxable investment account), your best bet is to make a "set it and forget it" purchase order that will automatically transfer funds from your bank account to your investment account and purchase this stock in accordance with the minimum and maximum share prices you've outlined. Having this process automated will significantly reduce your odds of taking action shortly before a public announcement that can impact stock price and will give you an affirmative defense against liability if your purchase does happen to coincide with a big announcement.
You'll also want to evaluate the type of information to which you're normally exposed. Generally, the higher up you are in the decision chain, the more difficult it can be to make regular stock trades and avoid liability for trading on insider knowledge. Meanwhile, someone who works in the stockroom or company cafeteria is unlikely to have access to nearly the same amount of confidential or non-public information as you do, and should be able to make trades freely.
If you find yourself in the category of employees who regularly have access to non-public knowledge that may affect the company's future, you may need to take further steps to insulate yourself from liability by putting your investment funds in the hands of a third-party advisor to make trades on your behalf without consulting with you first. This hands-off approach can ensure that your advisor is making trades based on only public knowledge and your fiduciary interests, rather than non-public information or even rumors.
For more information, you may want to talk to an experienced corporate lawyer. You can visit this related site for more information.
Share17 September 2015
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