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I have a family member ("Sue") that works for "Company A", which is currently working for another company ("Company B").

  • Me > Sue > Company A > Company B

I know nothing about company B except their name (and what I can gather from their website). Although Sue is not allowed to talk about any details, I can only assume that Sue, who is in product development for Company A, knows little (if anything) about Company B's business outside what she needs to know for her job. Regardless, Sue is not sharing any information with me.

Now, I've seen Company B's stock chart and data via Nasdaq.com, and I think based solely on the data available on the (public) NASDAQ website that it would be a good company to invest in.

My question is: can I invest in this company while simultaneously avoiding insider trading accusations?

  • If so, what is the best way forward in legally investing in this company without raising any unwarranted suspicions?

    • Is it even possible? (and if not, how long after Sue's company stops working for the company would it be ok/legitimate/legal?)

This post is obviously related (and makes clear points about material/nonpublic), but I was hoping to get a bit more nuanced response concerning my specific scenario.

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    I believe that post answers your question; you have no worries and can trade freely unless unless you have material, nonpublic information. If you do, then you need to be able to prove that your trade is not motivated by that information.
    – D Stanley
    Jan 23, 2018 at 20:51
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    @DStanley right, but I don't. Do I have to prove to someone that I don't prior to making a legal trade/investment? Or are accusations only made after the fact? For example, if perhaps I invest and the company suddenly [and randomly] makes a large jump in stock value, is it only then that I would have to defend myself?? -- And if that's the scenario and I really didn't know anything, how could I defend myself??
    – theforestecologist
    Jan 23, 2018 at 20:54
  • More to the point of my question: is there a way to invest in a company that I have some connection with while avoiding raising eyebrows? Or is it just best to never invest in this company ever??
    – theforestecologist
    Jan 23, 2018 at 20:56
  • 1) Insider trading is not illegal per se (and happens all the time), so it should raise no eyebrows. 2) If you do not have material information then there can be no evidence that you have material information to accuse you.
    – D Stanley
    Jan 23, 2018 at 21:31

2 Answers 2

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Yes, you can legally invest despite knowing employees.

US securities regulations forbid trading based on material, non-public information. If you have not done so then you do not need to prove that you have not done so.

Just like if you have not robbed a bank, you do not need to prove that you did not rob a bank.

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  • You might if the actual robbers were good and you happened to be in the wrong place at the wrong time.
    – user253751
    Jan 25, 2018 at 1:58
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can I invest in this company while simultaneously avoiding insider trading accusations?

You can go-ahead and invest in the company. There are multiple levels of monitoring, in Individuals case, the trading amount itself is nominal and often not under scrutiny. Even if there is scrutiny it is up to regulators to prove that you had possession of material information that was not in public domain.

So in short normal individuals investing few hundreds, thousands shouldn't be too worried.

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