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What Is Insider Trading?
Insider trading occurs when a person buys or sells stocks or other securities based on material, non-public information. It also includes providing non-public information to another person who then trades based on that information. In insider trading cases, the government must prove the information was shared in breach of a fiduciary duty and that the trading party knew or should have known about this violation.
Many cases involve information about company performance or business plans. However, prosecution can also involve information unrelated to company performance — such as disclosure that harms the company’s reputation or expansion opportunities through violation of a fiduciary duty.
Who Investigates and Prosecutes Insider Trading Crimes?
Insider trading is a serious federal offense typically prosecuted by the Securities and Exchange Commission (SEC) or the U.S. Department of Justice (DOJ). The Federal Bureau of Investigation (FBI), the Financial Industry Regulatory Authority (FINRA), and others may participate in investigations. The offense carries both criminal and civil penalties. The SEC may file civil charges while the DOJ pursues criminal prosecution. Penalties include prison time, fines, and disgorgement of profits gained through illegal trades.
Defending Against an Insider Trading Crime
Federal prosecutors must demonstrate beyond reasonable doubt that the defendant traded on material non-public information in breach of fiduciary duty, and that the information recipient also traded in violation of that duty. Effective defense requires careful analysis and skilled representation.
1. The Information Was Not Material, Non-Public Information
The government must establish that information was both material and non-public. Material information is what a reasonable investor would consider important in investment decisions. Non-public information has not been publicly disclosed and the public cannot reasonably obtain it.
2. The Information Was Not Obtained in Breach of a Fiduciary Duty
Fiduciary duty — a duty of trust owed by company officers or directors to shareholders — must have been breached when obtaining the information. The government must prove this breach.
3. The Information Was Not Obtained in Breach of a Confidentiality Agreement
A confidentiality agreement is a contract requiring information confidentiality between a company and employee or consultant. The government must demonstrate breach of such an agreement.
4. The Information Was Not Used to Make an Investment Decision
The government must show the defendant used the information to make an investment decision. If the CEO made the investment decision without using insider information, this may not constitute insider trading.
5. You Did Not Share or Use the Information
The defendant may defend against charges if they neither shared nor used the information. The government must prove the defendant shared information with someone who then traded based on it.
Spodek Law Group Can Help Defend You Against Insider Trading Charges
These represent examples of successful defenses in insider trading cases. Many other effective defenses are available beyond those listed. Insider trading constitutes a serious federal criminal offense. Those accused need experienced attorneys to build strong defenses, understand rights and options, and develop effective defense strategies. Spodek Law Group offers federal defense representation experienced in insider trading cases, having successfully represented investment professionals, corporate officers, and others in insider trading actions.
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Frequently Asked Questions
New Jersey reformed its bail system in 2017. Instead of a cash-based system, judges now use a Public Safety Assessment (PSA) to determine whether a defendant should be released pretrial. Most defendants are released with conditions, while those deemed high-risk may be detained. An experienced attorney can argue for favorable release conditions at your detention hearing.
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An arraignment is your first court appearance after being charged with a crime. The judge will read the charges against you, and you'll enter a plea (usually not guilty at this stage). The judge will also set bail or release conditions. Having an attorney at your arraignment is critical, as they can advocate for favorable bail terms and begin building your defense strategy from day one.
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