how is insider trading detected

How is Insider Trading Detected? All You Need to Know

In the last few years, the U.S. Securities and Exchange Commission (SEC) has been cracking down on insider trading, fining large companies, and putting individuals in prison. But where do they find out who’s breaking the rules? How do they know who to prosecute? This article describes the SEC’s process of tracking insider trading and how it leads to enforcement actions against wrongdoers.


recent report by the Securities and Exchange Commission (SEC) shows that insider trading enforcement is on the rise. While this sounds like good news, it also means that it is more important than ever to know what you are doing when it comes to trading securities. This is especially true for the individual investor who could get caught up in a complex web of regulations. The first step in avoiding insider trading violations? Know what you’re signing up for. In order to make sure you stay out of trouble.

What is Insider Trading?

Insider trading is when someone who has access to confidential information about a company uses that knowledge to buy or sell stock and make a profit. The Securities and Exchange Commission (SEC) is responsible for preventing insider trading. The SEC has created strict insider trading rules, which you can learn more about on the Securities and Exchange Commission website. 

For example, if you are an officer or director of the company, or you have access to information through your job with the company. Then you cannot trade in the stocks of that company for at least one year after you have left the position. This is called post-employment restrictions. The law prohibits anyone from buying shares from an officer or director of a corporation before they are offered to public investors.

Related: If you want to get away with insider trading, the best way to do it is to use the dark web! This will allow you to stay anonymous and keep your identity hidden. There are many different dark websites that you can use to trade stocks and other securities. Just make sure that you do your research and only use reputable sites. Read on to learn how to get away with insider trading using the dark web.

How the SEC Tracks Insider Trading?

Tracking Insider Trading
 Tracking Insider Trading

The Securities and Exchange Commission (SEC) investigates insider trading claims. The SEC also prosecutes offenders, seeking civil penalties and criminal sanctions. One way the SEC tracks insider trading is by looking for unusually large stock transactions made near market highs. 

It may indicate that insiders are selling shares before the company reports disappointing earnings or other news. Another way the SEC tracks insider trading using different insider trading trackers by analyzing stocks bought and sold by directors and officers of companies who are subject to reporting requirements.

The Division of Market Abuse and its Analysis and Detection Center

In the wake of 9/11, Congress passed the Sarbanes-Oxley Act in an effort to prevent future corporate scandals. The Act required that publicly traded companies create a code of ethics and appoint an ethics officer to ensure compliance. In 2002, Congress passed the Securities Exchange Act, which created the U.S. Securities and Exchange Commission (SEC). The SEC was created to protect investors by enforcing laws that regulate financial markets and trade securities, which includes enforcing laws against insider trading. 

The Division of Market Abuse is a part of the Enforcement Division. And it investigates violations through its Analysis and Detection Center. There are several types of insider trading, such as peeking at confidential information or knowing that someone who can give out confidential information will be doing so in advance. These different forms have different penalties depending on how much time has elapsed since the person first obtained inside information. Some states have also banned short-selling during bankruptcy proceedings to avoid market manipulation.

SEC’s Advanced Relational Trading Enforcement Metrics Investigation System

Insider Trading investigation system
Insider Trading investigation system

As the number of insider trading cases has grown, so have the investigative tools used to detect these illegal activities. The SEC now tracks and analyzes data from over 100 sources, including public and private companies, industry analysts, social media sites, and law enforcement agencies.

Information is fed into the Commission’s Advanced Relational Trading Enforcement Metrics Investigation System (ARTEMIS), which uses sophisticated algorithms to detect patterns of suspicious activity. It also monitors for alerts on unusual trades that FINRA or the U.S. Securities and Exchange Commission (SEC) posts

When ARTEMIS detects a potential violation, it can send an alert to investigators with specific details. These details include where the potential breach took place, what was traded, how many shares were traded in total, and who traded them. These programs are critical as they help track not only individuals who may be using inside information but also those working together in an organized ring of fraudsters trying to profit illegally off such knowledge.

The Trader-Based Approach To Insider Trading Investigations

the Securities and Exchange Commission
the Securities and Exchange Commission

There are a few different approaches that the SEC can take when it comes to investigating insider trading. One of the most common is called the trader-based approach, which relies on having suspicions about a person who is buying or selling stocks in a company and then looking at what they are doing. If there is some sort of connection between them and an insider, then they do further investigation.

SEC used this method successfully in many investigations and has led to many convictions. Because it does not depend on proving that someone knew inside information beforehand, the other common way for the SEC to investigate someone for insider trading is by monitoring communication. With company insiders, including phone calls, emails, or any other communication that could have given them access to insider information.

Learn about some of the most noteworthy incidents of when people traded on information that the general public lacked.

Implications for Legal Departments

A recent crackdown by the Securities and Exchange Commission (SEC) has legal departments across the country on high alert. The agency is working tirelessly to ferret out illegal trading that is detrimental to our national economy. In order to avoid an insider trading scandal, companies should educate employees on the importance of adhering to insider trading laws and policies. 

Doing so will protect your company from unnecessary risk and scrutiny. Employees who are found in violation of insider trade laws can face stiff penalties, including prison time, fines, and forfeiture of profits gained from illegal trades.

The Role of the SEC in Detecting Insider Trading

One of the SEC’s key roles in detecting insider trading is its responsibility to monitor trading activity on Wall Street.

Additionally, the SEC carries out fair investigations and has the power to prosecute people who violate federal securities laws, particularly those involving insider trading.

The purpose of many insider trading investigations is to gather evidence against suspected wrongdoers, who are then subject to civil and/or criminal penalties.

How Does the SEC Use Tip-offs to Detect Insider Trading?

The SEC has a list of tip-offs that they use to detect insider trading. These are the types of things someone would do if they had inside information about an upcoming event or release.

The SEC will often use tips from the public to detect insider trading. Tips come in the form of complaints, suspicious activity reports, and tips about corporate misconduct.

Most often, an SEC investigator finds a potential tip-off when s/he monitors financial transactions electronically and sees a stock trade being executed at an unusual time for that particular company’s stock.

How the SEC Uses Trading Data to Detect Insider Trading?

The SEC has a variety of techniques at its disposal to identify insider trading. Trading data is one of these tools. It’s a powerful tool that’s not only used by the SEC but also by major banks, hedge funds, and brokers. They utilize it for its predictive capabilities and to analyze trades in real time. The data includes information on when a trade took place, where it happened, who initiated the trade, and how much money was traded.

First, the SEC aggregates trade data from exchanges to search for suspicious patterns or large trades. Second, they examine individual filings with respect to the trading activities of insiders. Finally, they study the behavioral evidence to identify a pattern of behavior that is inconsistent with pre-existing information.

How Does the SEC Investigate Potential Insider Trading Cases?

The SEC looks into alleged cases of insider trading using a number of techniques, including the tip-offs it gets. These can range from company executives or directors themselves or an outsider who’s aware of an impending takeover that isn’t yet public knowledge.

The SEC may also use a number of tools at its disposal – financial record analysis, surveillance, wiretaps, and more – to try and gather evidence. Other agencies may also be brought in, including those tasked with countering national security threats.

How the SEC investigates potential cases of insider trading is an effective example of multi-agency cooperation. This helps keep white-collar crime in check and protects investors, who, after all, need to be kept in mind when ensuring that fair practices are being maintained.

Causes of Insider Trading

Insider trading is often caused by a lack of transparency. Certain stakeholders are not privy to all the information, so they trade on that information, giving them an unfair advantage. The lack of regulation on insider trading is one of the key reasons for the uptick in insider trading. The SEC is responsible for regulating securities and laws that govern public companies, but they are limited in what they can do when it comes to private companies.

Poor corporate governance could also lead an employee to trade on information about their company before it becomes public knowledge. Insider trading is caused by a lack of compliance. This can happen when an insider has access to privileged information and is not following the rules in place to protect this information. Weak internal control structures are what enable company insiders to engage in various types of misconduct without detection from the board, senior management, or external auditors.

What are the Consequences of Insider Trading?

A conviction for insider trading can ruin your career and put your entire reputation on the line. However, you should also consider the possibility of jail time, fines, and restitution.

Individuals who are found guilty of insider trading may be subject to penalties of up to $5 million and sentences of up to 20 years in prison. Business firms found guilty of insider trading may be fined up to $25 million, and anyone who took part in the plan may receive a 20-year prison term.

Even worse, you could receive a sentence that includes both fines and jail time for yourself or other company members.

The Penalties for Insider Trading

A person found guilty of insider trading may be ordered by the court to pay back all the gains they received from their illegal transaction. A fine of up to three times the realized profits may also be requested by the SEC from the court. Due to the fact that insider trading is a white-collar crime, offenders may also be subject to jail and other legal repercussions.

State law may also give businesses the right to continue pursuing legal action against a company’s control, executive, or other officers. These rules typically allow for the recovery of earnings as well as a fine.


It’s critical to have a firm grasp of insider trading regulations if you work in the financial markets. Before acting on information, it is advisable to seek advice from a financial professional or attorney if you are unsure of whether it is material or nonpublic. It is probably best to stay away from anything that borders on insider trading.


Who Investigates Insider Trading?

Insider trading offenses have been one of the SEC’s top enforcement priorities for investigation and prosecution.

When was Insider Trading Made Illegal?

On November 19, 1988, the Insider Trading Act was officially enacted. This law was created as a result of an increase in prominent insider trading cases and a rise in trade values.

Where to Find Insider Trading Info?

All filings relating to insider stock purchases and sales are freely accessible to the general public through the SEC’s Edgar database.

How Often Does Insider Trading Occur?

According to estimates, insider trading occurs once every five mergers and acquisitions and once every twenty quarterly results announcements.

Disclaimer: This article and the information contained herein are not intended to be a source of legal advice. We don’t promote any illegal activities such as insider trading or any other crime.

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