In September 2017, former Amazon.com Inc. (AMZN) financial analyst Brett Kennedy was indicted for insider trading. Authorities said Kennedy gave his University of Washington Alumni colleagues Maziar Rezakhani information about Amazon`s first quarter 2015 earnings before publication. Rezakhani paid Kennedy $10,000 for the information. In a related case, the SEC stated that Rezakhani negotiated $115,997 based on Kennedy`s tip with Amazon shares. Insider trading takes place every week on the stock exchange. The SEC requires that transactions be transmitted in a timely manner electronically. Transactions are transmitted electronically to the SEC and must also be disclosed on the company`s website. Insider trading involves tipping over others if you have some kind of non-public material information. Insider trading occurs when the company`s directors buy or sell shares, but they legally split their transactions. The Securities and Exchange Commission has rules to protect investments from the effects of insider trading.
It does not matter how essential non-public information was received or whether the person is employed by the company. Suppose someone is not informed by a family member and shares them with a friend. If the friend uses this inside information to profit from the stock exchange, all three parties could be sued. Business managers are not the only ones with the potential to be convicted of insider trading. In 2003, Martha Stewart was indicted by the SEC for obstruction of justice and securities fraud, including insider trading, for her role in the ImClone case in 2001. Insider trading involves the trading of shares of a company by someone who, for whatever reason, has non-public material information about that action. Insider trading can be either illegal or legal, depending on when the insider trades. It is illegal that material information is still not public, and this type of insider trading has serious consequences. The issue of legality arises from the SEC`s attempt to obtain a fair contract. A person with access to inside information would have an unfair advantage over other investors who do not have the same access and who could potentially make greater and disloyal profits than their co-investors. Shortly after these sales, the FDA rejected the drug ImClone, which had the effect of causing the shares to fall by 16% in a single day. Stewart`s early sale saved him a loss of 45,673 $US.
However, the sale was based on advice it received on the sale of its shares by Waksal, which was not public information. After a trial in 2004, Stewart was charged with minor crimes of obstruction of trial, conspiracy and making false statements to federal investigators. Stewart served five months in a federal detention facility. The Securities Exchange Act of 1934 was the first step towards the legal disclosure of share transactions. Directors and major shareholders must disclose their holdings, transactions and changes of ownership. Essential information is all information that could have a significant impact on an investor`s decision to buy or sell the warranty. Non-public information is information that is not legally available to the public. Stewart sold nearly 4,000 shares of biopharmaceutical company ImClone Systems, according to Peter Bacanovic, a broker at Merrill Lynch. Bacanovic`s board came after Samuel Waksal, managing director of ImClone Systems, sold all of his shares in the company. It happened on time ImClone was waiting for the Food and Drug Administration (FDA) for a decision on his cancer treatment, Erbitux. The best way to stay out of legal difficulties is to avoid non-public material information being shared or used, even if you have heard it by mistake.