Trading on the basis of material, non-public information is illegal, and everyone knows it. Less obvious is the importance of insiders advising their spouses and other household members that they also cannot trade on the basis of material, non-public information they may obtain from the insider. For the company insider, however, this conversation can make all the difference. I'll explain why in this piece and also provide some best practice reminders.

Consider the husband of the Informatica senior tax director. He observed his wife's unusual behavior—working during vacation—and overheard telephone calls made while he drove with his wife to Reno for vacation. He gleaned from all of this that Informatica Corp. was about to miss its earnings. He could have limited his activities to being warmly supportive of his wife's work. Instead, he shorted the stock. When the earnings miss was announced and the stock price fell, the husband achieved a profit of $140,000.

A similar set of facts played out for a finance manager at Oracle Corp. In that case, the husband of the Oracle insider overheard work calls his wife was making. He learned that Oracle was working on a still-secret acquisition of another public company, Acme Packet Inc. The husband proceeded to purchase shares in Acme Packet. He ultimately realized a profit of about $150,000 when Oracle announced the acquisition and he sold his stock.