What are the legal restrictions on insider trading?
Insider trading is prohibited by law in Washington and throughout the United States. Insider trading is the practice of buying or selling stocks in the stock market while in possession of confidential information concerning the company. When a person buys or sells a stock while knowing certain information that is not public, they are in violation of the law. Insider trading is unlawful in Washington because it gives the individual an unfair advantage over the general public. By having insider knowledge, the individual will be able to make a profit off a stock before the public knows about it. This could cause people to buy a stock before its value increases, causing the stock market to be unstable. Insider trading is a violation of the federal Securities Exchange Act of 1934. This act prohibits any person in a company from buying or selling stocks while in possession of material information that is not public. Material information would include anything about the company’s future financial performance, stock splits, product releases, or any other information that could significantly affect the company’s stock price. The federal law also prohibits any person connected with a company from leaking confidential information to outside parties who then buy or sell the stock based on this information. Any person found guilty of insider trading can face substantial fines and criminal charges. They can also be ordered to pay back any profits they have made.
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