Insider trading

Insider trading is buying or selling securities while possessing material, nonpublic information. Its legality depends on the trader’s duties, the information’s source, and applicable disclosure rules.

Material nonpublic information: Information is material if a reasonable investor would consider it important; it is nonpublic until broadly disseminated. Trading restrictions commonly hinge on whether the information meets both tests.
Insider transaction reporting: Regulatory disclosure of securities transactions by corporate insiders, including filings required under U.S. securities law. A properly reported insider purchase is not automatically unlawful insider trading.
United States v. O’Hagan: A 1997 U.S. Supreme Court case recognizing misappropriation theory under federal securities fraud law. The decision established that deception of an information source can support insider-trading liability.
Securities and Exchange Commission: The U.S. federal agency responsible for enforcing securities laws and regulating securities markets. The SEC investigates and brings civil actions involving suspected insider trading.
Fiduciary duty: A fiduciary duty is an obligation to act loyally and carefully for another party’s benefit. Breach of a duty of trust or confidence can make information misuse unlawful.
Information barrier: An organizational control that restricts confidential information from passing between separated business units. Effective barriers can prevent one unit’s knowledge from being attributed to another trader.
Dirks v. SEC: A 1983 U.S. Supreme Court case addressing when a tippee inherits an insider’s duty not to trade. Its personal-benefit test shapes liability for recipients of tips.
Insider trading prosecution: A criminal case alleging unlawful securities trading or tipping based on material nonpublic information. Prosecutors must prove the elements of fraud and the defendant’s required state of mind.
Misappropriation theory: A U.S. securities-law theory that treats deceptive use of confidential information for securities trading as fraud against its source. It can cover traders who owe duties to information sources rather than security issuers.
Front running: Trading ahead of a known, pending customer order to benefit from its expected market effect. It may involve confidential information, but its defining misconduct concerns customer orders.

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