Insider Trading
One of the greatest investors of all time, Peter Lynch, was noted as saying that "insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise" (Macey).
"Insider trading" is a term that most investors have heard and usually associate with illegal conduct. But what most investors don't know is that it includes both legal and illegal conduct. Legal insider trading is when corporate insiders?officers, directors, and employees?buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC.
Proving that someone has been responsible for insider trading can be difficult. Traders are sometimes able to hide behind nominees, offshore companies, and other agents. Nevertheless, the SEC prosecutes over 50 cases each year, with many being settled out of court. The SEC and several stock exchanges actively monitor trading, looking for suspicious activity. One way that the SEC is able to get people to provide information that leads to the recovery of a civil penalty from those who violate the insider trading laws is to pay a bounty. With some exceptions, the SEC is permitted to award a bounty from the civil penalties actually recovered from violators. The limit for the bounty pay out is ten percent of the penalty.
The SEC has complete discretion in whether or not to pay a bounty, the amount of the payment, and to whom the payment would be made. The SEC is not authorized to pay bounties for information about any other securities laws excluding insider trading.
Illegal insider trading, as defined from the official SEC website, "refers generally to buying or selling a security, in breach of a fiduciary duty or oth ...