| insider trading The illegal buying or selling of securities on the basis of information that is generally unavailable to the public. An example is the purchase by a director of shares of his or her firm's stock just before the release of surprisingly good earnings information. Case Study In November 2001 the Securities and Exchange Commission charged 15 individuals with insider trading in the shares of Nvidia Corporation, a California maker of graphics chips. According to the SEC, in March 2000 Nvidia's president used e-mail to inform employees the firm had won a major contract to supply chips for Microsoft Corporation's new Xbox video game system. News of the contract was not announced to the public until five days following the employee e-mail. The time lag allowed the 15 individuals  11 employees plus 4 people tipped by the employeesto profit by purchasing Nvidia shares prior to the public announcement of the contract. The case was relatively unusual in that the individuals charged with insider trading were low-level employees rather than high-level executives. |
Insider trading. If managers of a publicly held company, members of its board of directors, or anyone who holds more than 10% of the company trades its shares, it's considered insider trading.
This type of trading is perfectly legal, provided it's based on information available to the public.
It's only illegal if the decision is based on knowledge of corporate developments, such as executive changes, earnings reports, or acquisitions or takeovers that haven't yet been made public.
It is also illegal for people who are not part of the company, but who gain access to private corporate information, to trade the company's stock based on this inside information. The list includes lawyers, investment bankers, journalists, or relatives of company officials.
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