> In insider trading, famously, nobody quite knows what “legal” means. There is no statute defining or prohibiting insider trading, and the Securities and Exchange Commission rules on it are slim. But there are some judicially created rules that more or less make sense, that focus, roughly speaking, on whether insiders are using someone else’s information for their own gain. (A question that has nothing to do with market fairness, by the way.) But those rules are hazy and much disputed, and they aren’t written down in one place.

https://www.bloomberg.com/opinion/articles/2018-10-15/inside...

When a company employee is told something that's a secret and they trade on it or tell someone else then that's betraying that trust. If someone outside the firm figures it out, say from satellite photos or something like that, then it's not.

But why would I ever invest in a company if I knew that my gains would be stolen by people with secret knowledge?

If you allow insider trading, then you eliminate the incentive for outsider investing

And that means that we don't have public companies, only private companies.

Another way to think of it is that it creates an incentive for corporate espionage, so that outsiders may gain insider information.

In a world where corporate espionage is not itself illegal, the market would then be composed of private companies plus external "auditors" who are slipped in by all interested shareholders whether the private companies like it or not.

...which is oddly similar to governments performing intelligence on allies.

at that point of sale, the reality is the product sucks. but the market still reflects the price of a good product. so they know reality before everyone else, keep everyone else in fantasy, and trade at the fantasy price.

it further undermines the market bc no one will invest in companies who bail out with at the high price and leave them holding the bag. e.g. if someone asked me to buy 1k shares @ $100 each and i buy them: the product is a dud in R&D. the insiders all sell near the $100 price, the product is a dud in the market, share prices tanks to $30.

Next my "friend" asks me to invest I tell him to pound sand.