Legal Definitions - insider

An insider, in the context of financial markets and securities law, refers to an individual who possesses significant, nonpublic information about a corporation. This privileged knowledge is gained through their unique position or close association with the company, meaning they are aware of facts that are not yet available to the general investing public and could influence the company's stock price or other securities.

Typically, individuals considered insiders include a corporation's officers, directors, and employees. It also extends to external professionals, such as attorneys, accountants, or investment bankers, who are hired to work on confidential company matters and thereby gain access to sensitive information.

Here are some examples illustrating who might be considered an insider:

• Example 1: Corporate Executive
  The Chief Marketing Officer (CMO) of a major social media company learns during an executive meeting that the company's new flagship product, which was expected to boost user engagement significantly, is being delayed indefinitely due to unforeseen technical challenges. This information has not yet been shared with the public or investors.

  Explanation: The CMO is an insider because their high-level executive position grants them access to critical, nonpublic operational information that could negatively impact the company's future performance and stock value.

• Example 2: External Professional Advisor
  A senior consultant at a prestigious management consulting firm is hired to advise a struggling retail chain on a potential bankruptcy filing. Through this engagement, the consultant becomes privy to the company's dire financial state and its plans to liquidate assets, information that is highly confidential and not publicly known.

  Explanation: The senior consultant is an insider because they have obtained material, nonpublic information about a significant corporate event through their professional association and fiduciary duty to the company.

• Example 3: Key Employee with Specific Knowledge
  A research scientist working for a biotechnology firm discovers that a promising new cancer drug, which is currently in late-stage clinical trials and has generated significant investor excitement, is showing unexpected severe side effects in patients. This finding is still being internally verified and has not been disclosed to regulatory bodies or the public.

  Explanation: The research scientist is an insider because their role provides them with direct, nonpublic knowledge of a critical development that could drastically alter the company's prospects and stock valuation.