Would You Be Guilty of Insider Trading?

All investors rely on trading tips from others, but you need to be sure you’re not crossing into illegal activities.

If you’re an active investor who occasionally buys or sells a stock based on tips, you might be understandably nervous about the massive insider trading crackdown surrounding Galleon Group. The now-defunct hedge fund is linked to more than 20 guilty pleas and more than two dozen arrests involving an array of alleged conspirators, including lawyers, consultants and investment managers.

Editor's Note: On May 11, 2011, after the original publication of this story, hedge fund billionaire Raj Rajaratnam, a managing member of Galleon, was found guilty of 14 felonies -- nine counts of securities fraud and five of conspiracy to commit securities fraud. Each securities fraud conviction carries a maximum penalty of 20 years in prison and a $5 million fine. The ruling marks the 35th insider trading conviction over the past 18 months for the U.S. Attorney's office for the Southern District of New York.

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Kathy Kristof
Contributing Editor, Kiplinger's Personal Finance
Kristof, editor of SideHusl.com, is an award-winning financial journalist, who writes regularly for Kiplinger's Personal Finance and CBS MoneyWatch. She's the author of Investing 101, Taming the Tuition Tiger and Kathy Kristof's Complete Book of Dollars and Sense. But perhaps her biggest claim to fame is that she was once a Jeopardy question: Kathy Kristof replaced what famous personal finance columnist, who died in 1991? Answer: Sylvia Porter.