In general terms, illegal insider trading refers to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security.
The U.S. Securities and Exchange Commission (SEC) has brought insider trading cases against:
- Corporate officers, directors, and employees who bought or sold the corporation’s securities after learning of significant confidential corporate developments;
- Friends, business associates, family members, and others who bought or sold securities after receiving confidential “tips” from corporate officers, directors, and employees;
- Employees of companies (such as banks, brokerages, and printing companies) who bought or sold securities based on confidential information they learned about a corporation during their employment;
- Government employees who bought or sold securities based on confidential information they learned through their employment with the government; and
- Various others who have allegedly taken advantage of confidential information from their employers, family, friends, and others.
Who does the SEC target in an insider trading investigation?
The SEC views insider trading as both eroding public confidence in the market and impeding the fair functioning of the market. The SEC therefore aggressively prioritizes the investigation and prosecution of suspected insider trading, even when the activity involves relatively small dollar amounts.
The SEC generates leads on suspected insider trading in a number of ways, including through the use of sophisticated market surveillance activities and from tips and complaints from traders, whistleblowers, the financial media, and the public. Once the SEC identifies a potential instance of illegal insider trading, SEC investigators will seek to build a case by conducting personal interviews and examining email and phone activity, among other methods.
SEC investigators won’t limit their inquiry just to those who financially benefited from a suspected insider transaction. Instead, their investigation will likely seek to identify all involved and anyone with material information.
How can an attorney help me through an insider trading investigation?
Insider trading is a serious crime that may expose civil defendants to multi-million-dollar penalties, and criminal defendants to prison sentences of up to 20 years. However, allegations of insider trading may be challenging for the government to prove because most evidence will be circumstantial rather than direct. For this reason, in cases where the government’s insider trading case is weak, individuals under investigation are at risk of being charged with other crimes that often arise during the investigation – such as providing false information to federal investigators or otherwise obstructing investigators’ efforts.
You’ll need an attorney on your side who can speak for you (which protects you against allegations of obstruction) and help you build a solid defense against the insider trading allegations. For example, your attorney may be able to demonstrate that your purchase or sale of a security happened without any access to sensitive information or nonpublic knowledge about the traded company. In some cases, charges can be avoided by demonstrating you entered into a binding brokerage contract to trade the securities at set prices or under triggering circumstances unrelated to any insider information.
Simply having such information to provide to investigators isn’t enough to establish a legal defense. It’s critical that you practice your right to remain silent. Speak to an experienced Texas white collar criminal defense attorney as soon as possible.
The attorneys at Brewer, Pritchard & Buckley, P.C. have helped businesses, corporations, and professionals across the U.S. protect their careers, legal rights and reputations since 1991. Contact us online to find out how we can help you.