What is the difference between insider trading and securities fraud?
Insider trading and securities fraud are both terms used to describe illegal activity within the stock market. However, the two terms describe distinct illegal activities. Insider trading involves the trading of financial securities by someone who has access to material, nonpublic information about the security. This insider information is not available to the public, and allows the individual to gain an advantage over other traders. Securities fraud, on the other hand, involves purposefully misleading investors by making false statements or omitting important information about an investment opportunity. Examples of securities fraud include “pump and dump” schemes, where stock prices are artificially inflated and then sold at a higher price, and insider trading with company secrets. In North Carolina, insider trading is a violation of several federal statutes, including the Securities Exchange Act of 1934, and securities fraud is a violation of the North Carolina Securities Act. Both violations can be treated as criminal offenses. Depending on the severity of the case, individuals found to have committed insider trading may face civil sanctions or criminal charges. Violations of securities fraud are punishable by fines of up to $25,000, up to five years in jail, or both.
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