I was interviewed by the New York Times today regarding illegal trading in a firm’s securities by employees of that firm. A senior Facebook employee has been fired for allegations of “insider trading.”
There is no way, of course, to know whether the firing is justified or if the former employee will face a lawsuit or civil or criminal investigation. But all of those are possibilities when insiders buy securities from or sell securities to others while in possession of material non public information.
The analysis in any situation is complex but a useful rule of thumb is “Disclose or Abstain” – namely, if you are a corporate insider in possession of material information that outsiders are not aware of you should either disclose that information to them before engaging in a securities transaction or else do not trade.
Of course, most material information should not be disclosed willy nilly by employees – it is in essence an asset that belongs to the corporation (and its shareholders and the corporation may not want the information disclosed (even to its shareholders)). In fact, our securities laws allow corporations to keep significant amounts of information confidential for periods of time. We have a periodic disclosure regime in the US not a continuous disclosure regime.
That makes it very difficult for insiders to engage in securities transactions which is something that some people forget all too easily.