Expert: Steve Hach - 5/22/2009

Question
Hello:

What is the difference between insider selling and insider trading?  I know that one of these is illegal, perhaps both are.

I thank you for your reply.

Answer
Hi Kenneth,

Insider trading is when you use information not available to other investors to buy/sell stock.  This is illegal.

Typically, "insider selling" or "insider buying" is the sort of terminology used to refer to the buying and selling of company stock by major executives and other insiders at that firm.  It's not illegal but it has to be reported to the regulators and you cannot make the stock moves in a fashion that allows you to benefit from your insider position.

If I am the CEO of a company and I decide to sell my shares because I think the price is good and I want to sell it to make some money that is fine.  

If, however, I am the CEO and I find out that a product we are developing has failed--say a drug has bad side effects if I am at a drug company--and I sell my stock because I think the price will go down when the news comes out, this is insider trading and is illegal.

Hope this helps.

Best,

Steve