Simple English definitions for legal terms
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Insider: An insider is someone who knows secret information about a company because of their job or close relationship with the company. Insiders can be employees, directors, officers, lawyers, or accountants. It is illegal for insiders to use this secret information to buy or sell stocks or other securities, which is called insider trading.
In the world of securities, an insider is someone who has access to information about a company that is not available to the public. This information could be about the company's financial performance, plans for future growth, or other important details that could affect the value of the company's stock.
Insiders can include:
It is illegal for insiders to use this nonpublic information to buy or sell stocks or other securities. This is known as insider trading, and it is a crime under the Securities Exchange Act.
For example, imagine that the CEO of a company learns that the company is about to announce a major new product that will revolutionize the industry. If the CEO buys a large amount of the company's stock before the announcement is made public, this would be considered insider trading.
Another example could be an accountant who works for a company and learns that the company's financial results for the quarter are much better than expected. If the accountant buys or sells stock based on this information before it is made public, this would also be considered insider trading.
These examples illustrate how insiders can use their access to nonpublic information to gain an unfair advantage in the stock market, which is why insider trading is illegal.