Get all the details on insider trading. Learn what it is and how it works. Discover what happens to someone who does it.

Many people in Florida vividly remember when Martha Stewart went to prison for insider trading. It was a huge national news story at the time. While it shocked everyone, it also caused some confusion. Many people really didn't understand insider trading. This is a complex topic but understanding it is important to avoid trouble.

What is insider trading?

The U.S. Securities and Exchange Commission explains that insider trading is the use of non-public information supplied by someone who has a duty not to disclose it to buy or sell stock. That is a bit tricky, but essentially it is profiting or helping someone else profit from information other investors do not have. A key point is also that the person supplying the information must have a responsibility to keep that information secret. MarketWatch notes that a person is guilty of this white-collar crime if he or she shares the information or uses the information.

Why is it illegal?

The main reason insider trading is illegal, as explained by The Street, is because it gives some investors an unfair edge over others. It ruins the fairness or even playing field that the government intends the market to have. In addition, it distorts the market and gives too much power to insiders.

Furthermore, it is an ethical issue. The breach of fiduciary duty is something serious. When someone abuses their power like this, it could lead to other issues.

How can a person avoid doing it?

This is a difficult thing because it can happen by accident. If a person gets information that he or she did not know was not public and uses that to buy or sell stocks, then that is insider trading. That person could face charges.

The reason for this is the SEC says it is each person's duty to find the original source of any information he or she gets to ensure it is legal information. Anyone receiving a random stock tip needs to do their research or they could face charges.

The fact that the law is vague also muddles the situation. There is no clear definition of what information results in insider trading. This makes it tough for courts to make a ruling in cases.

If you have concerns about insider trading or find yourself facing charges, then you should contact an attorney, such as Frank A. Rubino, Esq. A knowledgeable lawyer can help you navigate the situation while keeping your best interests in mind.