What are the differences between insider trading and securities fraud?

Insider trading and securities fraud are both illegal activities related to stock trading but they are not the same. Insider trading involves the use of nonpublic information to buy or sell securities (stocks, bonds, options, etc.). This type of trading is illegal because the insider gains an unfair advantage over other traders who do not have access to the same information. Securities fraud involves making false or misleading statements to influence the price of a security. This could be through false information about a company’s financial condition, strategies, or fraudulently inflating the value of a stock (Pump and Dump schemes). In California, insider trading is punishable by up to three years in state prison and a fine of up to $2,500.00, while securities fraud is punishable by up to five years in state prison and a fine of up to $10,000.00. Additionally, both can result in orders from the court prohibiting the defendant from ever working in the securities industry again. The key difference between insider trading and securities fraud is that insider trading only requires the use of nonpublic information that gives the trader an unfair advantage, while securities fraud requires actively manipulating the market or making false or misleading statements. Both are serious crimes with severe penalties and can result in serious financial losses for investors.

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