Shares of auto finance company AmeriCredit (NYSE:ACF) traded off this morning after the company said in a Monday evening press release that it believes the SEC is done investigating five employees for insider trading. (No official government announcement on the resolution of this matter has been made.)
The SEC, according to the company, was after five employees it believed traded shares of the company's stock based on "material, non-public information." Without providing further details, AmeriCredit said it has taken "appropriate disciplinary action" and hopes to close the case by paying a $100,000 fine while neither admitting nor denying liability for its employees' actions.
What exactly is "insider trading"? Importantly, it's not when corporate insiders including employees, directors and officers buy or sell shares in their own companies -- properly reported, this is perfectly legal. Instead, it's when anyone trades while in possession of what is deemed "material, non-public information."
Providing insider "tips," among other things, is also illegal. For more information on insider trading, check the SEC's website. (Importantly, it's not just corporate employees who can get in trouble, but also friends and family, employees of the government or professional services firms, housewares magnates, and others.)
High-profile insider trading cases are relatively rare -- there's a reason those we do hear about get so much publicity. But you'd probably be surprised to find out how much of it goes on. A look at the SEC's litigation releases webpage shows a fairly steady stream of complaints brought by the government against investors. (Not all the entries on the list deal with insider trading.) The variety of cases and the players involved runs a fascinating gamut.
Since most Fools aren't criminals, there's little need for any finger-wagging here. Even so, it's worth understanding exactly what constitutes insider trading -- it is even, theoretically, possible to do it without even realizing it. More importantly, it's important to remember that insider trading, like other securities violations, undermines our markets and hurts investor confidence.
However seemingly small the violation, it's hardly a "victimless crime."
You can reach Dave Marino-Nachison at [email protected] .
