Insider Trading Law

• Since 1961, federal courts have interpreted the Securities and Exchange Commission's Rule 10b-5, which deals with fraud, as a prohibition on insider trading. However, individual states' securities laws may have disparate definitions of insider trading, and state courts' interpretations of these laws may vary.
  
  

Inside Trading

• Courts have defined an "insider" as someone whose relationship with a company has given him access to confidential information not available to the investing community at large. Inside stock trading is the act of trading based on such confidential information.
  
  

Disclose Or Abstain

• Under the "disclose or abstain" rule, an insider who wishes to trade based on confidential information must disclose the information to the public before trading or wait to trade until someone else makes disclosure.
  
  

Tippee Liability

• The majority of federal courts have also found non-inside investors ("tippees") liable under Rule 10b-5 when they receive and trade on inside information, but only if the investor knew or should have known that the information came from an insider.