How do insider trading laws protect investors from securities fraud?
Insider trading laws protect investors from securities fraud by prohibiting the use of privileged information for financial gain. Such laws prevent individuals from using inside information that is not available to the public to buy or sell securities on the open market. For example, if an individual has access to non-public information that could impact the price of a company’s securities, such as planned merger activity, the individual is prohibited from using that information to buy or sell securities on the open market. If the individual does so, he or she has committed securities fraud. In Washington, the Department of Financial Institutions (DFI) enforces the state’s securities laws, including those related to insider trading. The DFI can investigate insider trading violations and file charges, or refer the case to the appropriate state or federal agencies. In addition, the DFI certifies and regulates broker-dealers and investment advisors, who are responsible for providing investors with appropriate advice and monitoring trading activity. These regulations ensure that investors are trading in a safe and secure environment and that their investments are being handled properly. In summary, insider trading laws protect investors from securities fraud by prohibiting the use of privileged information for financial gain. These laws, along with the regulations enforced by the DFI, create a secure environment for trading and investing in securities.
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