v4n2 - What is Insider Trading?

The term “insider trading” can apply to both legal and illegal conduct. On the legal side, corporate insiders, such as officers, directors and employees, can buy and sell stock in their own company. Corporate insiders must report any trades they make in their own securities to the SEC.

Insider trading becomes illegal when a security is bought or sold while having material, nonpublic information about the security. Violations also include tipping others about inside information.

While physician-investigators have been prosecuted for using inside information obtained during clinical trials, no insider trading cases exist against research subjects. Authors of last year’s article in the Journal of the National Cancer Institute state: “It seems clear that research subjects would, at times, have awareness of information that could rightly be considered nonpublic. ... Research subjects who invest in the companies sponsoring the clinical trials in which they are enrolled conceivably face the legal consequences of insider trading.”

The authors call for research into the extent of a possible problem, because “such financial conflicts of interest may be so rare that no corrective action need be taken.”