Insider Information

Definition:

Non-public information about a company in the hands of (known by) insiders such as directors, officers, and employees of the company. The term generally also includes non-public information that has been passed on by insiders to relatives or other favored persons.

In the United States, there is no general legal prohibition against insiders trading securities. However, it is illegal under federal securities laws for insiders to trade securities using material Insider Information before the information has been publicly disclosed. Such Insider Trading is subject to civil damages and penalties. The same prohibition applies to people (tippees) who have received the information from insiders. It is also a violation of federal Insider Trading laws for anyone to use Material Non-Public Information that is obtained unlawfully (e.g., by breach of trust or theft) for trading in securities. In the case of Tender Offer information, there is an even more restrictive rule (Rule 14e-3) that dispenses with the condition that the information be unlawfully obtained. Determining materiality of information is a fact-specific inquiry. If the information is the reason for the trade, it is in all likelihood material by SEC and judicial standards. The SEC antifraud Rule 10b-5, as interpreted in SEC rulings and court decisions, is the main source of most US Insider Trading law.

For trading by insiders pursuant to a prearranged selling plan, see Rule 10b5-1 Trading Plan.