Your corporate lawyer will likely advise you to avoid insider trading as you make financial investments for the success of your business, but how can you make sure it doesn't take place at your company? It's important to understand what insider trading is, clearly define it for your employees, and put policies in place to ensure that everyone's trades conform to securities law.

What Is Insider Trading?

Put simply, insider trading is using non-public information to make decisions about trading public stock. For example, if one of your employees overhears executives talking about business assets and then uses that overheard information to purchase or offload stock in your company, that employee could be considered to have committed insider trading. It's treated as an offense by the U.S. Securities and Exchange Commission because it can manipulate the market in ways that are unfair to the public. If you are accused of insider trading, you'll likely need a lawyer to help you address the potential penalties.

How Can You Prevent It?

One of the easiest ways to help your employees understand and avoid insider trading is to offer training. Provide clear examples so that your employees know the various ways that non-public information could make its way into the wrong hands.

It's important to understand that an employee could be a part of an insider trading scheme without even knowing it. For example, an employee might have a casual conversation with their family about business dealings at the company that are not public knowledge. If a family member told another friend in a casual conversation about what they heard and the friend went on to purchase or sell stock based on that information, then all three people—your employee, their family member, and the friend—could be accused of participating in insider trading.

Your lawyer will likely advise you to implement company policies to prevent this from happening because it's possible that you could be held liable for one of your employees supplying non-public information for insider trading. Here are some example policies your attorney might recommend:

• Require all employees and company officers to report their trades to the SEC within 10 days.
• Require all employees to consult your company's corporate lawyer for clearance before making trades.
• Establish blackout periods where employees, including directors, are not permitted to purchase or sell stocks until after a certain amount of time has passed.

Conforming to securities law is an essential part of running a business and ensuring its long-term success. If you want to ask an attorney about more ways to prevent insider trading at your firm, you can try these out.