Essay on Investors Rely On Financial Statements And Information

984 Words Sep 9th, 2016 4 Pages
Investors rely on financial statements and information as it is very important to the decisions they make. When this information is leaked or used prior to its release to the general public, it can cause substantial changes in the pricing of a company’s stock. “Insider trading” is a term that is commonly known to investors, but what is insider trading? This term in most cases is references to illegal actions. However, the term speaks to both legal and illegal actions. According to the U.S. Securities and Exchange Commission (n.d.) (SEC), Insider trading as a legal action, addresses when corporate insiders-officers, directors, and employees-buy and sell stock in their own companies. In situations of legal insider trading, they are required to report their trades to the SEC by filing the appropriate paperwork. Illegal insider trading refers to the breach of a fiduciary duty or other relationship of trust and confidence while in possession of material, nonpublic information, about the security, when selling and buying a security (SEC n.d.). Additional violations can include the act of “tipping” when information, security trading by the person “tipped,” as well as securities trading by those who misappropriate such information. The Securities and Exchange Commission (SEC) is the entity that monitors illegal insider trading in the United States by looking at the trading volumes of any particular stock. The SEC then investigates to determine who is responsible for any unusual…

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