Insider trading can be a serious offense. You could receive up to 20 years of jail time and $5 million in fines. The law does not distinguish between intentional and accidental insider trading. If you meet the key requirements for insider trading, authorities can hold you liable for it. Here are some key points to help determine your liability:
Insider trading definition
In simple terms, insider trading is buying and selling a company’s stock based on material, nonpublic information (MNPI). MNPI is any information the public does not know or have access to. Being an insider is not a requirement in liability. Simply acting on MNPI knowing it is MNPI will make you liable for insider trading.
But I just overheard it!
It does not matter whether you overheard it or chanced upon it in a discarded email or confidential document. Trading on any MNPI is insider trading. Insiders wishing to trade in the stocks they own must report to the SEC before they do so and fulfill several requirements to be allowed to do so. Non-insiders can only trade on the stock if the MNPI they hold has become public.
What if I already made the trade?
Suppose you made a trade because a friend or a relative gave you a tip to do so without telling you that the information they were sharing was MNPI; you could still be liable for insider trading. Remember that the onus of checking if you are trading based on MNPI is on you as a trader. That is why it is crucial for traders always to practice checking if the information they are holding is MNPI.
If you have already traded on MNPI, consider consulting a lawyer who can advise you on the immediate steps to avoid or minimize legal repercussions.