Inside Information Law and Legal Definition

Inside information is any type of data that is obtained by someone not from public disclosure, but from a source within the company or a source that owes the company a duty to keep the information confidential. For example, the information that is known to the company's board of directors, management, and/or employees is inside information. Inside information usually includes information about a company’s financial or market situation. It is also called as insider information. The individual who receives such information may be an officer who is entitled to access to the information, or someone within the organizational structure that comes across the information by accident or other means. Further, it is illegal for such person who receives the information to make trades based on such information.

In Provident Sec. Co. v. Foremost-McKesson, Inc., 506 F.2d 601 (9th Cir. 1974), the court observed that “The Securities Exchange Act of 1934, 15 U.S.C.S. § 78p(b) (16(b)), requires a court to presume that a shareholder who owns 10 percent of his corporation's stock has access to inside information. Where, however, the hostility of the management of the corporation to the 10-percent shareholder precludes any real possibility of access to inside information, the presumption may be rebutted and the court may conclude that he in fact did not have access.”