What does insider trading mean?
Sheridan Smith’s cleaner Sam decides to make money from confidential information in the new six-part ITV series, Cleaning Up
Sheridan Smith’s new drama Cleaning Up follows an office cleaner, Sam (played by Smith), who turns to insider trading in order to make ends meet.
Once the city high-flyers power down their computers and exit their skyscraper offices, a team of cleaners move in, tasked with scrubbing stains, wiping desks and taking out bins. But Sam soon learns that one of the company’s stockbrokers is profiting from his insider knowledge – and she starts to wonder why she shouldn’t grab a chance to do the same…
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Sam has a stab at explaining the concept to her fellow cleaner Jess over a drink:
“These insider traders have info that the public don’t know about,” she tells her. “They then invest that info into the stock market. Bingo! The value of whatever they’ve bought goes up because they knew it was going to go up. They had the information. That’s how it works, that’s how they get rich.”
How do they obtain that information, Jess asks. “They share it with each other – if somebody knows a company is going to get bought out, they know the stocks are going to rise. So then he passes that info on and it’s all very hush hush.”
Hush hush indeed because – as is mentioned repeatedly in Cleaning Up – insider trading is a criminal offence and carries a significant custodial sentence.
What exactly is insider trading?
The stock market is controlled by various rules and regulations in a bid to keep it fair for the people looking to make money from investments. One such rule forbids anyone who has confidential information on a company from using that knowledge to buy and sell shares for their own gain.
So, for example, if you were to come by news that a company is about to be bought out by a much bigger company, you might want to invest in a few shares in the smaller of the two companies in anticipation that they would soon be worth more than you paid for them.
But if the imminent buy-out is confidential, and knowledge of it is unavailable to other investors on the market, then using that information to spin a profit is illegal and, if discovered, you’re likely to face prosecution.
Insider trading also applies to information about a soon-to-be fall in a company’s fortunes – for example, if you had stock in a company and were privy to information that its CEO was about to face criminal prosecution, until that news was made public, it would be illegal to sell up early in anticipation of the price of your stocks dropping.
And the law also forbids you from passing on any of that information to someone else to trade for their benefit or yours.
Has insider trading always been illegal?
No. The United States of America passed the Securities Exchange Act in 1934 which criminalised insider trading, in reaction to the stock market crash of 1929. In the UK, it has been illegal since 1980.
What is the punishment for insider trading?
In the UK, insider trading carries a maximum prison sentence of seven years and an unlimited fine. The longest sentence imposed so far has been four and a half years.
Who has been convicted of insider trading?
Perhaps one of the most famous cases is that of Martha Stewart – cooking entrepreneur and the American equivalent of Mary Berry – who in 2003 received a five-month prison sentence. Her conviction was for the sale of her 3,928 shares in ImClone Systems in December 2001 after receiving non-public information from her broker.
