What are the legal restrictions on insider trading?
Insider trading refers to the practice of buying or selling a security, such as a stock, based on nonpublic information (information not yet available to the public). In California, insider trading is considered a form of fraud and is illegal. The law prohibits insiders (people who possess material nonpublic information that would be important to someone making an investment decision) from buying or selling securities, or sharing information with other people, in order to make a profit or avoid a loss. Under federal and California laws, it is illegal to buy or sell securities based on material, nonpublic information. Insider trading can result in civil legal action, including administrative action by the U.S. Securities and Exchange Commission (SEC), as well as potential criminal action by the Department of Justice. In addition, California law prevents people with nonpublic information from tipping off other people or sharing information with them so they can make trades. The SEC punishes violators of insider trading laws by seeking monetary fines and jail time. It is important for investors to understand that insider trading is unlawful and to be aware of the penalties for those who violate insider trading laws. The penalties for insider trading can be severe. Violators of the law can face criminal and civil penalties, including jail time, fines and disgorgement, or the surrender of profits gained from the illegal activity. In addition, the SEC can bring civil enforcement proceedings against people who violated insider trading laws and seek an injunction to prevent future violations.
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