Inside Information: What You Need to Know About Its Legal Definition

Q: Can I be prosecuted for knowing inside information?

Simply knowing inside information is not illegal; however, trading based on that information can lead to prosecution.

Q: Who can access inside information?

Access can be granted to employees, board members, and others who have a duty to keep the information confidential.

Definition & Meaning

Inside information refers to non-public data about a company that is obtained from a source within the organization or from someone who has a duty to keep that information confidential. This type of information is typically known to the company's board of directors, management, and employees. Inside information often includes sensitive details regarding a company's financial status or market performance. It is also known as insider information. Individuals who gain access to this information, whether they are authorized or not, are prohibited from trading based on it.

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Legal Use & context

Inside information is primarily relevant in the context of securities law and corporate governance. It is crucial in preventing insider trading, which is illegal and can lead to significant penalties. Legal professionals often deal with issues surrounding insider information in civil litigation, regulatory compliance, and corporate law. Users can manage some aspects of these issues themselves using legal templates from US Legal Forms, which are crafted by licensed attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: An employee at a tech company learns about an upcoming product launch that has not yet been announced publicly. If they trade company stock based on this information, they could be charged with insider trading.

Example 2: A board member of a pharmaceutical company discovers that a new drug has received FDA approval before the public announcement. Trading shares based on this knowledge would constitute illegal use of inside information. (hypothetical example)

Relevant laws & statutes

The primary law governing inside information is the Securities Exchange Act of 1934, particularly Section 10(b) and Rule 10b-5, which prohibit fraudulent activities in connection with the purchase or sale of securities. Additionally, case law, such as Provident Sec. Co. v. Foremost-McKesson, Inc., provides judicial interpretation of access to inside information.

Common misunderstandings

Some people believe that only executives can have access to inside information; however, any employee or individual with a duty of confidentiality may access it.
Another misconception is that insider trading only applies to stock; it can also pertain to other securities and financial instruments.
People often think that simply knowing inside information is enough to be prosecuted; actual trading based on that information is what leads to legal consequences.

What to do if this term applies to you

If you believe you have access to inside information, it is crucial to refrain from trading on that information. Instead, consult with a legal professional to understand your obligations and rights. If you need to draft documents or agreements related to confidentiality, consider using the ready-to-use legal form templates available at US Legal Forms. For more complex situations, seeking professional legal advice is recommended.

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Quick facts

Attribute	Details
Typical penalties for insider trading	Fines up to three times the profit gained or loss avoided, and possible imprisonment.
Jurisdiction	Federal and state laws apply.
Legal areas involved	Securities law, corporate law, regulatory compliance.