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What should I know about insider trading and its enforcement?

On behalf of Brewer, Pritchard & Buckley, P.C. posted in sec compliance and enforcement on Friday, June 1, 2018.

For Texans who work with securities and seek to make money by understanding the fluctuations and variances of the stock market or are involved in a business, it is wise to try to gather as much information as they can prior to risking their hard-earned money. For some, this might lead to violations of the federal securities law by taking part in insider trading. For others, they might have gotten caught up in a situation and not even realized that they had violated the law.

Law enforcement generally does not differentiate between whether the violations were intentional when it is pursuing an investigation, so it is important to understand what might constitute insider trading beforehand and especially after allegations of wrongdoing have been made. When a security is purchased or sold and there is a legal violation by having information that is not available to the general public, it can be considered insider trading. This can also happen when there is a “tip” given to a person who plans to buy the security and this is information that could only come from those who are involved in the inner workings of the company or with the stock.

The following can be considered insider traders: those who know of corporate developments such as mergers planned; if people who are involved with insiders of the companies involved with a stock; those who are bankers, lawyers or others who are part of the process that can garner inside information; government employees who come across the information as part of their jobs; and political entities who receive classified material. Since these acts violate the law and undermine the concept of fairness in securities, it is a legal violation and could lead to an arrest and hefty penalties.

Since an individual’s or a business’s reputation often hinges on honesty, being accused of insider trading and other securities violations can cause significant damage and lead to the arrest and incarceration of those alleged to be involved. Having legal assistance from the start with cases involving SEC compliance and enforcement can avoid these problems. It is especially important if there is an investigation and allegations related to insider trading and other financial misdeeds are made. Contacting a lawyer is the first call that should be made.

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