Federal Insider Trading Charges: Defenses and Penalties

The Defenses and Penalties of Federal Insider Trading Charges

Introduction

Insider trading is the buying or selling of a publicly traded company’s securities while in possession of confidential information that is not available to the general public. It is considered illegal as it breaches an individual’s fiduciary duty to maintain confidential information for the benefit of the company. Recently, there has been a significant increase in federal insider trading cases, leading to tighter control and increased penalties. This article will explore the types of insider trading, penalties for federal insider trading, defense strategies against insider trading charges, and more.

What is Considered Inside Trading?

Insider trading involves the use of nonpublic information in the buying or selling of stock, as well as passing on such information to another entity, in order to benefit financially from the trade. Inside trading may involve current or former executive employees, board members, or any individual possessing confidential information, even if the information is gained through unofficial means.

Examples of Insider Trading

Insider trading is not limited to large corporations and may occur at any level of a company’s organizational structure. Some examples of insider trading include the following:

1. Trading on Mergers and Acquisitions

Suppose a company is set to acquire a smaller company, and a top-level executive decides to invest in the company before the merger is publicly announced. In that case, the transaction amounts to insider trading due to the confidential information that the executive possesses.

2. Trading on Industry-Specific Information

Insider trading may also involve trading on confidential information related to an industry. For example, if an executive in a pharmaceutical company has insider knowledge of the status of a drug still under research, and he or she decides to invest in the company ahead of its public release, that amounts to insider trading.

3. Trading on Earnings Information

If an individual has significant insider knowledge of a company’s earnings reports before they are released to the public, trading on the said information is considered insider trading.

4. Trading on Speculations

If an individual knowingly acquires and distributes confidential information that could potentially affect a company's performance, he or she is guilty of insider trading.

5. Trading by Relatives or Associates of Corporate Insiders

The Securities and Exchange Commission (SEC) considers insider trading illegal even if the information is passed to a family member or friend, who in turn makes the stock trade decisions based on that information.

How Do Investigations For Inside Trading Work?

Investigations of insider trading typically begin with the Securities and Exchange Commission (SEC) conducting a suspicious trading analysis, wherein they scan trading records and identify transactions with unusually high returns within suspicious timelines. If there is sufficient evidence of insider trading activity, the SEC may file a complaint in a federal court. The SEC can also launch an investigation if it receives a tip-off from insiders, whistleblowers, or credible sources with information about insider trading.

Penalties for Federal Insider Trading

Insider trading is considered a serious crime with severe penalties. If an individual is found guilty, the penalties may include the following:

1. Imprisonment

Individuals who are found guilty of insider trading may face significant prison time. Depending on the severity of the offense, individuals may face up to 20 years in prison.

2. Financial Supervision

Individuals found liable for insider trading may face additional penalties, including oversight by financial authorities. This may result in contempt of court charges and significant fines.

3. Fines

Individuals found guilty of insider trading may also face significant fines of up to three times the amount of the profit gained or lost from the trade. This is intended to serve as a deterrent to prevent individuals from attempting to engage in insider trading.

Defense Strategies Against Insider Trading Charges

Individuals charged with insider trading may mount several defense strategies. The following are some of the most common defenses in insider trading cases:

1. Lack of Knowledge

The accused may argue that he or she was not aware that the transaction amounted to insider trading, that the information they had did not constitute insider information, or that he or she did not have full non-public information.

2. Lack of Intent

The defendant may also argue that he or she did not have the intention to commit insider trading, that he or she unknowingly engaged in the activity, or that he or she acted in good faith and considered the information to be accessible or public.

3. Proof of Altruism

In some cases, the accused can argue that he or she used insider trading profits to benefit others, such as charities or organizations, rather than themselves.

Contact a Federal Defense Attorney

If you have been charged with federal insider trading, it is essential to consult a federal defense attorney immediately. An attorney experienced in federal law can guide you through the legal process and offer you the best defense strategies to avoid penalties such as imprisonment and fines. At Kolsrud Law Offices, we have a team of experienced and qualified attorneys who offer legal representation for individuals charged with federal crimes, including insider trading. Contact us today for a free consultation on the specific details of your case and experience the best legal representation. Federal Insider Trading Charges: Defenses and Penalties-