In theory, the securities market should be a level playing field that offers no advantages to anyone. In practice, though, that may not be the case. Individuals who owe a fiduciary duty to someone else may use private information to buy or sell securities. This behavior may constitute illegal insider trading.
The Securities and Exchange Commission regularly monitors markets for signs of impermissible insider trading. If there are material ones, the enforcement division may conduct a private investigation that may lead to criminal charges. Typically, the SEC uncovers illegal insider trading in three ways.
1. Market surveillance
The SEC uses sophisticated computer technology to surveil the markets. If something is amiss, computer algorithms are likely to flag it. You can expect heightened surveillance activities around major market events, such as initial public offerings or earnings reports. Nonetheless, market surveillance may catch impermissible conduct at any time.
2. Complaints
In the securities game, there usually are not winners without any losers. If someone engages in illegal insider trading, someone else may have lost out on market gains. The SEC regularly uses complaints from affected traders to begin investigations. Still, someone does not need to suffer a financial loss to tip off the SEC. Anyone who has material information about a potentially illegal action may file a complaint.
3. Outside sources
There are a few different independent regulatory bodies that monitor market activities. These groups may identify illegal insider trading before others do. The same is true for reporters who regularly cover markets and business matters. If there is a news story about possible illegal conduct, you can expect the SEC to look into the deal.
If you think someone from the SEC may be investigating one of your securities transactions, you likely must act quickly to protect your legal rights. After all, the investigation may be in full swing before you realize there is a potential problem.
