Insider Action: Who Is an Insider?

When the U.S. Congress of 1934 legislated the Securities Exchange Commission (SEC) into existence to protect individual investors, it realized that corporate executives had an unfair advantage when trading their own companies' shares. But these politicians also realized that they could not ban such transactions.

Even then, shares were used as incentives for employees, and who would start a public company if they couldn't participate in its success?

In lieu of banning insider transactions, the U.S Congress dictated disclosure. If insiders did trade, they would have to fill out a "Form 4" and tell the world about it.

Of course, Congress needed to define who an "insider" is. The SEC obviously had to know who to police, and the people being watched over needed to know that they were now expected to play by new rules. ...