store manager advises a staff member to pull his stock from his 401k, because our company’s stock is about to crash. Is that illegal?

UPDATED: May 19, 2009

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store manager advises a staff member to pull his stock from his 401k, because our company’s stock is about to crash. Is that illegal?

Asked on May 19, 2009 under Criminal Law, North Carolina


B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

This can cause a problem with what are called "insider trading" rules of the federal Securities and Exchange Commission ("SEC").  If you buy or stock based on information that is not available to the public, and you profit (or shift losses over to whoever sells or buys the stock) because of that, you can be forced to give back the money that is the difference between where you ended up, and where you would have been if you hadn't had the unfair advantage.

This isn't often enforced against small investors.  And if the store manager isn't giving advice based on something he knows just because he's the store manager, it isn't "insider" information.

Some very fine hairs get split on these questions, sometimes.  An attorney who practices business and securities law can give you more information, based on the unique facts of your situation.  One place you can look for a lawyer to help you with this is our website,

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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