What Is Insider Trading? What the Law Says — In Plain Words

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The definition, in the SEC's own framing — two wordings, printed separately

Investor.gov's “Insider Trading” page states:

“Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Insider trading violations may also include ‘tipping’ such information, securities trading by the person ‘tipped,’ and securities trading by those who misappropriate such information.”

The SEC's “Spotlight on Insider Trading” page states the definition this way:

“Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include ‘tipping’ such information, securities trading by the person ‘tipped,’ and securities trading by those who misappropriate such information.”

The difference, printed unmerged: Investor.gov says “on the basis of” material, nonpublic information. The Spotlight page says “while in possession of” material, nonpublic information. The rest of the two definitions matches. This page does not choose between the two wordings and does not combine them.

What else the definition covers: tipping and misappropriation

Both pages above say the same three added things count as insider trading violations:

• “Tipping” the information — in plain words, passing the important, nonpublic information to someone else.
• Securities trading by the person “tipped” — in plain words, trading by the person who received the information.
• Securities trading by those who misappropriate such information — in plain words, trading by people who took and used information that was trusted to them.

Neither page names a “classical theory” or a “misappropriation theory” of insider trading. Because the official explainer pages read for this page do not state those theory names, this page does not print them as law. The gap is noted again below.

Who the SEC says it brings cases against — the Spotlight list

The Spotlight page says: “The SEC regularly brings insider trading enforcement actions against:”

• “Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments.”
• “Friends, business associates, family members, and other ‘tippees’ of such officers, directors, and employees, who traded the securities after receiving such information.”
• “Other persons who misappropriated, and took advantage of, confidential information from their employers.”

That is the full list as the Spotlight page prints it: three groups.

Who the SEC says it brings cases against — the Investor.gov list

Investor.gov's “Insider Trading” page says: “Examples of insider trading cases that have been brought by the SEC are cases against:”

• “Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments;”
• “Friends, business associates, family members, and other ‘tippees’ of such officers, directors, and employees, who traded the securities after receiving such information;”
• “Employees of law, banking, brokerage and printing firms who traded based on information they obtained in connection with providing services to the corporation whose securities they traded;”
• “Government employees who traded based on confidential information they learned because of their employment with the government;”
• “Political intelligence consultants who may tip or trade based on material, nonpublic information they obtain from government employees; and”
• “Other persons who misappropriated, and took advantage of, confidential information from their employers, family, friends, and others.”

That is the full list as the Investor.gov page prints it: six groups. The two lists differ. The Investor.gov list is longer, and its last group is worded more widely — “from their employers, family, friends, and others” — where the Spotlight list says only “from their employers.” Both lists are printed above in full. They are not merged on this page.

These are groups, not named cases. Neither explainer page names a person or a case in these lists, and this page names none.

Why the SEC says this matters, and who enforces it

Investor.gov's “Insider Trading” page states:

“Because insider trading undermines investor confidence in the fairness and integrity of the securities markets, the SEC has treated the detection and prosecution of insider trading violations as one of its enforcement priorities.”

The Spotlight page states the priority point in its own words:

“Insider trading continues to be a high priority area for the SEC's enforcement program, with recent cases involving hedge fund managers, corporate insiders, and even government employees who unlawfully traded on material non-public information.”

On enforcement, the pages read for this page say this, and no more: the SEC brings insider trading enforcement actions, and the SEC treats detection and prosecution of insider trading violations as an enforcement priority. Investor.gov also points readers to litigation releases issued by the SEC's Division of Enforcement. The explainer pages read in full do not split enforcement into a civil part and a criminal part, and they do not name any other enforcing office. This page does not add that split.

The explainer pages read in full state no penalty amounts and no prison terms. This page therefore prints none.

Rule 10b5-1 plans and the affirmative defense, as the SEC states it

The SEC's page “Insider Trading Arrangements and Related Disclosures” describes a final rule. That page is titled “Rule 10b5-1 and Insider Trading.” It states:

“We are adopting amendments to the rule under the Securities Exchange Act of 1934 (‘Exchange Act’) that provides affirmative defenses to trading on the basis of material nonpublic information in insider trading cases. The amendments add new conditions to this rule that are designed to address concerns about abuse of the rule to trade securities opportunistically on the basis of material nonpublic information in ways that harm investors and undermine the integrity of the securities markets.”

In plain words: an affirmative defense is a defense a person can raise under the rule. A Rule 10b5-1 plan, as the SEC frames it, is a trading plan connected to that defense.

The SEC's press release “SEC Adopts Amendments to Modernize Rule 10b5-1 Insider Trading Plans and Related Disclosures,” dated Dec. 14, 2022, states that Rule 10b5-1(c)(1) “provides an affirmative defense to insider trading liability under Section 10(b) and Rule 10b-5.” It quotes SEC Chair Gary Gensler:

“About 20 years ago, the SEC established Exchange Act Rule 10b5-1. This rule provided affirmative defenses for corporate insiders and companies to buy and sell company stock as long as they adopted their trading plans in good faith — before becoming aware of material nonpublic information.”

The same press release states the new conditions that must be met for the affirmative defense, in the SEC's framing:

• The amendments adopt cooling-off periods for persons other than issuers before trading can commence under a Rule 10b5-1 plan. In plain words, a cooling-off period is a waiting time before trading can start.
• The amendments add a condition that all persons entering into a Rule 10b5-1 plan must act in good faith with respect to the plan.
• Directors and officers must include representations in their plans certifying, at the time of the adoption of a new or modified Rule 10b5-1 plan, that: (1) they are not aware of any material nonpublic information about the issuer or its securities; and (2) they are adopting the plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5.
• The amendments restrict the use of multiple overlapping trading plans.
• The amendments limit the ability to rely on the affirmative defense for a single-trade plan to one single-trade plan per twelve-month period for all persons other than issuers.

The press release also states that the amendments require more comprehensive disclosure about issuers' policies and procedures related to insider trading, including quarterly disclosure by issuers regarding the use of Rule 10b5-1 plans and certain other trading arrangements by its directors and officers.

The final-rule page gives these dates as printed on that page: SEC Issue Date Dec. 14, 2022; Effective Date February 27, 2023; and “Last Reviewed or Updated: May 20, 2025.”

Gaps and old material in the official pages themselves

The Spotlight page carries this banner at the top, exactly as it appears:

“The content on this page is no longer being updated. Please refer to SEC Enforcement Actions: Insider Trading Cases for the most recent information on Insider Trading.”

The Spotlight page is dated, as printed on the page: “Modified: 11/23/2012.” Its definition and its three-group list above come from that old page, and they are labelled with that page wherever they are used on this page.

The Investor.gov “Insider Trading” page, as read in full, prints no date on the page. No date is claimed for it here.

What the official explainer set read in full does not state:

• It does not name a classical theory or a misappropriation theory of insider trading.
• It states no penalty amounts and no prison terms.
• It does not split enforcement into a civil part and a criminal part.

This page prints none of those things, rather than filling the gaps from any other source.

This page is general information only. It is not financial advice. It is not legal advice.