Can I Go to Jail for Insider Trading?
Understanding the Criminal Consequences of Insider Trading
If you have been accused of insider trading, you could be facing civil or criminal allegations. While civil charges can lead to substantial monetary penalties, criminal charges carry the risk for substantial monetary penalties as well as the potential for a term of imprisonment.
The U.S. Securities and Exchange Commission (SEC) has the authority to impose civil penalties, and it is not uncommon for the SEC to pursue civil enforcement actions in cases involving allegations of insider trading. However, the SEC often refers cases to the U.S. Department of Justice (DOJ) as well, and the DOJ can pursue criminal charges in cases where warranted. Not only does the DOJ regularly prosecute criminal cases involving allegations of insider trading, but it secures convictions in the vast majority of these cases.
Criminal Penalties for Insider Trading Under U.S. Securities Law
1. The Penalties Imposed for Insider Trading Depend on How Much Money Was Involved
There are various criminal statutes that can come into play when federal prosecutors are pursuing insider trading charges. The main (but not exclusive) authorities in these cases are Sections 10(b) and 32(a) of the Securities Exchange Act of 1934. Section 32(a) imposes criminal penalties for violations of Section 10(b), including:
- A maximum fine of $5,000,000 for individuals and $25,000,000 for entities;
If an individual or entity is determined to have made a profit (or to have avoided a loss) from insider trading transactions, then the fine will be increased to the amount of the profit (or loss avoided). This is in addition to the civil penalties imposed by the SEC (which include “disgorgement” of profits unlawfully obtained through insider trading), and the total fines imposed in criminal cases can be substantial.
2. Individuals Who Are Convicted of Insider Trading Can Spend Decades Behind Bars
In particularly egregious cases involving large-scale insider trading schemes, individuals who are convicted of insider trading can spend decades behind bars. For example, in a notable case from 2011, hedge fund manager Raj Rajaratnam was sentenced to 11 years in prison. In another notable case, Martha Stewart was sentenced to five months in prison for a single transaction involving a loss of approximately $45,000 (albeit the charges against her were slightly different than the charges filed in most criminal insider trading cases).
In more typical cases, the potential prison time for individuals who are convicted of insider trading is one to three years. Oftentimes, individuals who are convicted of insider trading will face multiple federal charges as a result of their alleged conduct. As a result, in addition to facing prison time for insider trading, these individuals can also face the possibility of spending decades in prison for bank fraud, mail fraud, tax fraud, and other offenses.
3. Individuals Who Are Charged with Federal Crimes Related to Insider Trading Will Also Face Criminal Penalties
While individuals who are accused of insider trading can face years or decades of prison time, the potential criminal penalties go beyond this as well. For example, as explained by the DOJ, individuals who are convicted of insider trading can also face:
- A term of supervised release (in addition to any term of imprisonment imposed);
- Substantial fines; and,
- Various other costs and expenses.
Supervised release is similar in many respects to probation, and it is largely intended to prevent individuals who are convicted of insider trading from engaging in the same types of illegal transactions in the future. While supervised release is not as confining as prison time, it is still a significant restriction on individuals’ freedom, and it is a significant consequence of being accused of insider trading as well.
4. Individuals Who are Convicted of Insider Trading Will Face Numerous Other Consequences as Well
Even after prison time and supervised release, individuals who are convicted of insider trading will face numerous other consequences as well. Once convicted, individuals who have violated Section 10(b) will be considered “bad actors” under federal securities law, and this will prevent them from engaging in various types of transactions and investments. A criminal conviction can have numerous other consequences as well, from preventing individuals from securing financing to preventing them from getting a job.
What are the Other Consequences of Facing Federal Allegations of Insider Trading?
While the financial and legal consequences of facing an insider trading investigation are severe, there are other risks involved as well. Being accused of insider trading can be costly even if you are not convicted or found civilly liable, and in many cases the reputational harm caused by an insider trading investigation can be irreparable.
In addition to securing experienced legal representation for your investigation, it can also be important to work with your legal counsel to develop an effective media and public relations strategy. If you believe that the SEC or DOJ is investigating you for insider trading, it is important that you begin to take proactive steps to protect yourself immediately.
FAQs: Defending Against Allegations of Insider Trading
What is the Difference Between Civil and Criminal Penalties for Insider Trading?
Civil insider trading cases are prosecuted by the SEC, while criminal prosecutions are handled by the DOJ. While the SEC can only seek fines and injunctive relief, the DOJ can seek monetary penalties and prison time, and it will often charge individuals suspected of insider trading with multiple other federal crimes as well.
What is the Difference Between the DOJ and the SEC?
The DOJ and SEC are two completely separate federal agencies. While the SEC is focused specifically on enforcing securities law, the DOJ is responsible for enforcing all federal criminal statutes. The SEC can conduct civil investigations on its own, and it can also refer cases to the DOJ when necessary. While the DOJ can (and does) initiate criminal investigations on its own, it will often work in concert with the SEC when investigating cases involving allegations of insider trading.
How Do Federal Authorities Investigate Allegations of Insider Trading?
Federal authorities use a variety of different methods to investigate allegations of insider trading. This includes conducting interviews, seizing and searching individuals’ computers and phones, analyzing individuals’ trading patterns, conducting surveillance, and using various other means to gather evidence.
What Should I Do if I Think I Am Under Investigation for Insider Trading?
If you think you may be under investigation for insider trading, you should engage defense counsel promptly. Your defense counsel will be able to take effective action on your behalf, and your defense counsel will also be able to help you avoid mistakes that could lead to unnecessary exposure in your case.
Should I Hire an Attorney to Deal with the DOJ for Me?
If you are under investigation by the DOJ for insider trading, you should engage experienced defense counsel as soon as possible. The DOJ prosecutes cases against individuals suspected of insider trading very aggressively, and you will need to be able to rely on an experienced defense team to help you avoid unnecessary consequences.
Discuss Your Case with a Senior Federal Defense Attorney Today
Do you need to speak with a federal defense lawyer about an insider trading investigation? If so, we can help. To arrange a confidential initial consultation with one of our senior defense lawyers, call 212-300-5196 or tell us how we can reach you online now.
