10 Things You Must Know About Insider Trading

If you’re an active investor who occasionally buys or sells stocks based on tips, you need to know what's allowed -- and what can land you in jail.

If you’re an active investor who occasionally buys or sells stocks based on tips, you need to know what's allowed -- and what can land you in jail.

After all, the headlines are rife these days with Washington, D.C. power brokers who have brought the wrath of the Securities and Exchange Commission down on their heads.

In the highest-profile case of alleged insider trading these days, the Department of Justice is investigating Sen. Richard Burr for a series of stock sales he made after attending private coronavirus briefings. A week later the stock market tanked.

The investigation of Burr came hard on the heels of the resolution of the Chris Collins scandal. In January, the former congressman received a 26-month prison sentence and a $200,000 fine.

While in office, Collins fed information he received as a board member of biotechnology company Innate Immunotherapeutics to help his son and others avoid thousands of dollars in losses after one of the firm's drugs failed a clinical trial.

Insider trading is a complicated subject where gray areas abound. In many cases, it is perfectly legal (although potentially unwise) to trade on tips that you hear or overhear. Illegal insider trading all comes down to the facts and circumstances.

Have a look at 10 scenarios that illustrate the dos and don'ts of using insider information.

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.