The Securities Exchange Act of 1934 prohibits fraud and manipulation in the stock markets. One way the markets are manipulated is through insider trading. To many folks, this violation might seem like a victimless crime, but the federal government has long held that the financial markets affect the banking system, the economic stability of the nation, even the amount of taxes collected by the Treasury and, therefore, they must be protected against abuses. Insider trading is fraudulent. That might not sound right at first, but think about it--the handful of people with confidential information have an unfair advantage over all shareholders and other investors. They are considered fiduciaries to the shareholders, who must put the shareholders' needs first. Since that can't happen if the information is used to make a secret illegal trade, the person possessing the information has to abstain from passing around or using it.
But, humans being humans--and usually men being men--some people will sign non-disclosure agreements with their employer's attorneys and ignore emails from said attorneys warning them not to trade in the stock until further notice, all for an illegal profit of 80-some thousand bucks. So, if you know your employer is about to make a huge acquisition valued internally at some $800 million, and the announcement will maybe push up the company's stock price 30%, is it tempting to buy shares in your wife's account ahead of the announcement? Sure. Could you get by with it? The guy in the link below probably thought he could. Now, he knows better. He'll never be an executive at ANY public company if the SEC has their way. He'll give all the money he made back plus interest. And, he'll pay a financial penalty that will seem big even to a wealthy executive. Check it out--this will help you understand a few test questions a little better.
And maybe keep you out of court rooms and prison cells.
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