NEW YORK (CNN/Money) - The Securities and Exchange Commission, which brings about 50 insider trading cases a year, defines the violation this way: "trading while in possession of material, non-public information."

Its latest case, of course, targets Martha Stewart, who the SEC says sold 3,928 shares of ImClone Systems (IMCLE: Research, Estimates) after getting an illegal tip from her stockbroker.

Martha Stewart

The aim of insider trading law is simple: prohibit people from profiting from advance knowledge of a stock-moving event -- be it a merger, an earnings warning or a soon-to-be-published news story.

And many times the violation is simple, too. An executive who knows about a merger tips off a colleague who then makes a trade. Or an individual with no access to inside information goes out of the way to get some and then trades on it.

But murky areas exist.

"It's not always as clear cut as we might think," said James Owers, professor at the Robinson College of Business at Georgia State University.

The Department of Justice seemed to be saying as much Wednesday when its indictment of Stewart accused her of lying to investigators but did not charge her with insider trading.

"The circumstantial evidence [against Stewart] is compelling," said Owers. But "obstruction of justice is much more easily proven."

Of course, corporate "insiders" can buy and sell stock legally, as long as they don't use information that puts them ahead of the general public. Determining when insider trading violations occur comes down to the nature of the tip and the source of the information.

Wayne Carlin, director of the SEC's Northeast Regional Office, said that accidentally overhearing information, say on a bus or subway, and using it to trade would not constitute a violation, in part because the investor did not know the source's credibility.

The financial world is full of false, public rumors that thousands of investors trade on every day with impunity. Some rumors even turn out to be true.

"There are a lot of trading situations that we investigate and do not pursue an action if they acted innocently," Carlin said.

Consider Schering-Plough. Wall Street analysts have called the drugmaker a takeover target for years. But buying the company's stock for that reason is not insider trading.

On the other hand, the SEC recently sued four people who made more than $1.4 million by stealing copies of Business Week magazine ahead of its publication. The commission said people who worked at the plant where the publication was printed tipped others to more than 160 securities featured in the "Inside Wall Street" column ahead of when the magazine hit newsstands.

A CEO who trades ahead of a merger announcement involving the CEO's company is, of course, violating the law. So, too, are trades by a banker or lawyer working on that merger.

CNNfn's Chris Huntington takes a closer look at Martha Stewart's legal troubles and her statement regarding the charges. Play video (Real or Windows Media)

In the Stewart matter, the SEC alleges that Stewart sold after her Merrill Lynch broker, through an assistant, told her that Sam Waksal, a friend of Stewart's and then CEO of ImClone, was trying to sell his shares.

Waksal knew the Food and Drug Administration was about to reject the biotechnology company's application for Erbitux, an experimental cancer drug.

ImClone shares tumbled the day after Stewart sold on Dec. 27, 2001, allowing her to avoid losses of $45,673, according to the SEC. Stewart has said she did nothing wrong and that she and her broker had a long-standing agreement to sell the shares if they fell below $60.

Stewart, who pleaded not guilty to Wednesday's criminal charges, proclaimed her innocence to the public Thursday in a USA Today ad and on a Web site.

"I simply returned a call from my stockbroker," her letter on the Web site said. "Based in large part on prior discussions with my broker about price, I authorized a sale of my remaining shares in a biotech company called ImClone."

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Detecting insider trading often begins with the New York Stock Exchange and the Nasdaq Stock Market, where experts eye trading activity in stocks on the days before a big merger or other big news became public.

Carlin, the SEC director, spoke of a case in which an attorney learned of and acted upon inside information while preparing the estate taxes for an executive. Another case involved a therapist who traded based upon what a patient with inside information said during therapy.

When Microsoft CEO Steve Ballmer last month sold some of his Microsoft stock, he took pains to say that the sale had nothing to do with the software maker's business. "Even though this is a personal financial matter, I want to be clear about this to avoid any confusion," he said, adding he remained "as committed to Microsoft as ever."

As for the person who comes across what may be inside information and is not sure what to do, Carlin of the SEC had this tip: "One of the best things you can do is get legal advice."