“Insider trading” refers to the use of private or non-publicly available information illicitly obtained to make trade decisions. Insider trading often gives people in high places unfair advantages, which is why federal law prohibits it. In some cases, people commit insider trading knowingly, with the intent to deceive and despite an existing fiduciary duty. In many other cases, however, perpetrators commit the crime unknowingly, in which case prosecuting the offender becomes much more difficult.
Insider trading is one of the very few crimes you can commit accidentally. Because of this, a judge overseeing a criminal case may apply the theory of Mens rea, which translates to “guilty mind.” In practice, the term means the necessary mental intent to commit a crime. According to TheStreet, Mens rea serves as the basis to all criminal proceedings in the United States, with the theory being that you must be able to comprehend the nature of your actions and intend to follow through with them.
For example, say you grab another person’s wallet off a table. The taking is an accident if you grab the wallet thinking it is yours. It is a crime if you take the wallet knowing full well that it belongs to someone else. It is important to note that in this instance ignorance of the law is not an excuse. You do not have to know that taking someone else’s wallet is illegal; you simply have to take the wallet knowing it is not yours.
The latter part of this equation is important when it comes to insider trading. For a judge to find you guilty of insider trading, you must use non-public, material information gained through confidence or trust to make a trade. You do not have to be aware of the fact that in making the trade, you violated a fiduciary duty or confidence. This is because, from the Security Exchange Commission’s perspective, you have a responsibility to check your sources and ensure that the information you gain is legitimate to act on. If you do not or cannot, you should not make the trade.