Insider trading isn't illegal. Certain types of insider trading are. The main difference: illegal insider trading involves information not available to the public. A CEO can sell or buy stock as they please so long as they aren't tying it to info unavailable to the public.

Employees with over 10% ownership are considered insiders. They have to report stock sales of that company to the SEC within 2 days of a transaction. There is also a 6 month blackout after transactions. If they buy shares, they can't sell them for 6 months.

The Sarbanes Oxley Act of 2002 put C-level execs under a lot of scrutiny and it still remains. The government has a strong interest in preventing another Enron from happening.

As with any law and/or regulation everything comes down to enforcement. And I'm sure there are plenty of execs that are willing to roll the dice on sliding a transaction by using privildged info.