Insider trading is legal when executives buy or sell their own company's stock and report it publicly through SEC Form 4 filings. It's illegal when trades are based on stolen, non-public information and hidden from regulators. The difference matters for investors, because the legal kind produces insider buying data that has historically outperformed the market, and most people have never looked at it.

The illegal kind is what makes headlines. On May 6, 2026, the SEC charged 21 individuals in one of the largest insider trading schemes in recent history, alleging that an M&A attorney spent years funneling confidential deal information from law firms to a network of traders, complete with kickback agreements and millions in illicit profits. Cases like that are why most people, especially European investors, assume "insider trading" means one thing: crime.

But the other kind of insider trading happens every single day, in broad daylight, and is completely legal. It's the kind we track at InsiderSignals, and understanding the difference is one of the most important things a self-directed investor can learn.

What happened in the SEC case?

The scheme worked like this: Nicolo Nourafchan, an attorney working on mergers and acquisitions, had access to material non-public information (MNPI), meaning details about pending deals that hadn't been announced yet. He allegedly passed that information to a network of traders led by Robert Yadgarov, who traded on it before the deals went public.

This is textbook illegal insider trading. The key elements:

• Material non-public information. The traders knew about deals before the public did.
• Misappropriation. The information was stolen from law firms and their clients.
• Deception. The trades were hidden through intermediaries and kickback schemes.
• No disclosure. None of these trades were reported to the SEC as insider transactions.

This is what most people picture when they hear "insider trading." And for good reason: it's the version that makes headlines.

What does legal insider trading look like?

A CEO of a publicly traded company decides to buy $2 million worth of their own company's stock. They use their own money, through their personal brokerage account. Within two business days, they file a document called a Form 4 with the SEC, the US Securities and Exchange Commission.

That filing is immediately public. Anyone can see it. It shows exactly who bought, how many shares, at what price, and how much of the company they now own.

This is legal insider trading. It's been required by US securities law since the Securities Exchange Act of 1934. Every director, officer, and 10%+ shareholder of a US public company must file a Form 4 within two business days of any transaction in their company's stock.

The logic is straightforward: executives know more about their companies than outside investors. Rather than banning them from trading entirely, the US system requires full transparency. Trade freely, report everything.

Why the distinction matters

The difference between legal and illegal insider trading is fundamental:

When a CEO files a Form 4 showing they bought $2 million of their own stock, they're not breaking the law. They're following it. And the data they create in the process (decades of it, millions of filings) is one of the most studied signals in financial research.

The European blind spot

If you're an investor based in Europe, there's a good chance the distinction above is new to you.

In most EU countries, executive stock trading is tightly regulated through compliance officers, pre-clearance requirements, and mandatory closed periods before financial reports. Under the EU Market Abuse Regulation (MAR), executives (called Persons Discharging Managerial Responsibilities, or PDMRs) can legally trade their own company's stock, but the process involves more friction than in the US.

This regulatory culture, combined with the fact that European media almost exclusively uses "insider trading" to describe the illegal kind, creates a perception gap. Most European retail investors assume all insider trading is prohibited.

It's not. Executives trade their own stock legally in Europe too. The difference is that in the US, all of this data flows into one centralized system, SEC EDGAR, making it accessible to anyone. In Europe, the same data is fragmented across 20+ national regulators (AFM in the Netherlands, BaFin in Germany, AMF in France), each with different formats and systems.

The US system's transparency creates a unique dataset. And that dataset is what InsiderSignals is built on.

What we actually track

InsiderSignals monitors every SEC Form 4 filing in real time. We process the data, score each insider equity purchase based on historical patterns (who bought, how much, what percentage of their holdings it represents, and how similar trades have performed over a decade), and surface the signals that have historically mattered most.

We don't trade on non-public information. We don't have access to anything that isn't already public. Every filing we process is available on SEC EDGAR for free.

What we add is the scoring and filtering. Over 4 million filings processed across a decade reveal a clear pattern: about 85% of insider transactions are noise, like stock grants, options exercises, automatic selling plans, and compensation events. Only about 15% are discretionary open-market purchases, where an insider is choosing to put their own money in.

That 15% is where the signal lives. And within that 15%, not all trades carry the same weight.

The next time you see a headline

The next time you read "insider trading scheme busted" in the news, you'll know: that's the illegal kind. Misappropriated information, hidden trades, no disclosure.

The legal kind, executives buying their own stock and reporting it publicly, is happening at the same time, every day, in plain sight. Most investors never look at it.

See the latest scored insider filings: start your free 30-day trial at insidersignals.io.

Related Reading

• How to Read an SEC Form 4 Filing (And What Most Investors Miss): A walkthrough of the disclosure document that makes legal insider trading trackable.
• Does Insider Buying Beat the Market?: What a decade of this legal disclosure data shows when you score every purchase.
• Insider Buying by Sector: Where the Smart Money Is Going in 2026: Where legally disclosed insider purchases are concentrating right now.

For informational purposes only. Not investment advice.