The future is questionable for Senator Richard Burr from North Carolina. Senator Burr is being investigated by the FBI and Department of Justice for possible insider trading stemming from his stock sales at the beginning of the COVID-19 pandemic in the United States.
According to CBS 17, Senator Burr may have exploited information he was privy to as the chairman of the Senate Intelligence Committee in the selling of $1.7 million in stocks in the days preceding the downward spiral of the stock market due to concerns about COVID-19.
Of course, Senator Burr is innocent until proven guilty – and the investigation should shed some light on the circumstances surrounding the sale of this stock.
Insider trading is a serious charge in the world of white-collar crime, but what constitutes insider trading and what doesn’t may surprise you. Here’s what you need to know about this illegal practice and what is and is not allowed when dealing with information and insider knowledge about the market.
Insider Trading: What is it?
A person commits insider trading when they have material, non-public information about a public company, and uses that information to make decisions about the stock of the company – buying or selling.
Insider trading can be legal, but it boils down to when the trade actually occurred. It is an illegal practice if the information is non-public when the trade occurred, but legal if the information used to make the trade is public knowledge.
What is Material Information?
Material information is the basis of legal or illegal insider trading. The law defines material information as any information that could impact the decision made by the investor to sell or buy the security in question.
If the material information is not legally available to the public, then it’s considered non-public information. If not all investors have the same access to information that can potentially shape buying and selling decisions, then that’s not fair. It’s illegal.
This is part of the question in the investigation into Senator Burr because he may have had advanced information not yet made public due to his position as the chairman of the Senate Intelligence Committee. It is suspected that his access to insider (non-public) information influenced his stock sales and purchases.
Legal versus Non-Legal Insider Trading
Believe it or not, insider trading can be a legal practice. If someone purchases shares of a company and legally discloses the transactions, it is legal as long as the trades weren’t based on material, non-public information.
You can avoid charges of illegal insider trading by simply avoiding the use of non-public information to influence your decisions, even if you accidentally overheard the material information.
The SEC monitors illegal insider trading by checking the trading volumes of particular stocks. After material news is made public the volumes of stocks commonly increase or decrease. However, when information has not been made public and volumes of stocks rise or fall, this can be a red flag that they look into further.
If you invest or trade in stocks, always ensure that you’re abiding by the law. If you ever have a question about the legality of something you see or hear, it’s best to get legal advice to ensure you don’t get caught up in insider trading or other white-collar crimes.