The Supreme Court established the Dirks Test in 1983 to have a consistent way of determining whether someone is guilty of illegal insider trading. The Dirks Test is also known as the personal benefits test. If you are under investigation for securities fraud in South Carolina, both the state attorney general and the federal government could conduct investigations that include the personal benefits test.

Criteria of the Dirks Test

The Dirks Test seeks to answer two questions. They are:

1. Did you breach your company’s trust by disclosing confidential or non-public information?
2. Did you knowingly use or share insider information?

The court may find you guilty if you should have known that tipping off someone was a breach of fiduciary duty. Tipees also have legal responsibility to avoid benefiting from insider information. If you overhear non-public information, then you shouldn’t act on it. How you came across the information doesn’t matter; you can still get in trouble for insider trading when you act on information that’s not available to the public.

What counts as personal benefits?

Some people assume that something is only insider trading if it financially benefits them. White-collar crimes like insider trading are usually financially motivated but not always. Other types of personal benefits that count as illegal insider trading are reputational benefits and reciprocal information.

Even if you don’t receive a direct benefit from leaking insider information to another person, the court will investigate whether you did so knowing that you would indirectly benefit from that person using your insider information. An indirect benefit is still a benefit.

The Dirks Test is the way that the U.S. judicial system determines whether or not someone is guilty of illegal insider trading. Anyone who trades must know what counts as illegal insider trading to avoid trouble with the law. If you have been accused of securities fraud, a defense attorney may help you fight these white-collar crime charges.