What are Federal Insider Trading Crimes?

Federal insider trading crimes refer to illegal activities related to the buying or selling of securities (such as stocks, bonds, or options) based on material nonpublic information obtained from a company or organization. Insider trading occurs when individuals with access to confidential information use that information to make trading decisions, giving them an unfair advantage over other investors in the market.

Under U.S. federal law, insider trading is primarily regulated by the Securities Exchange Act of 1934 and enforced by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ).

The following are some key elements and violations associated with federal insider trading crimes:

Material Nonpublic Information: Insider trading involves trading securities based on material information that is not publicly available. Material information refers to facts that a reasonable investor would consider important when making an investment decision.

Insider: An insider is someone who has access to confidential information about a company or organization. This typically includes officers, directors, employees, or consultants who obtain nonpublic information through their position or relationship with the company.

Breach of Fiduciary Duty or Misappropriation: Insider trading violations generally fall into two categories. The first involves insiders who breach their fiduciary duty to the company by trading on the confidential information they obtained in their capacity as company insiders. The second category involves “misappropriation,” where individuals obtain and trade on material nonpublic information from a source other than their own company, such as a friend, relative, or business associate.

Tippee Liability: Individuals who receive material nonpublic information from an insider and trade on that information can also be held liable for insider trading. These individuals are referred to as “tippees” and can face legal consequences if they knew or should have known that the information they received was obtained through a breach of fiduciary duty or other improper means.

SEC Enforcement: The SEC investigates and brings civil and criminal enforcement actions against individuals and entities suspected of engaging in insider trading. If found guilty, individuals may face penalties such as disgorgement of illegal profits, fines, injunctions, and other sanctions. In some cases, the SEC may also seek to ban individuals from trading in securities or serving as officers or directors of public companies.

Insider trading can also be prosecuted as a criminal offense by the DOJ. Criminal charges can result in significant fines and imprisonment if convicted. The level of punishment varies based on the severity of the offense and the amount of financial harm caused.

Potential Penalties:

Criminal Penalties: Individuals convicted of criminal insider trading can face substantial fines and imprisonment. The maximum criminal penalties for insider trading offenses under federal law include fines of up to $5 million for individuals and $25 million for entities (such as corporations), along with imprisonment of up to 20 years.

Civil Penalties: The Securities and Exchange Commission (SEC) can bring civil enforcement actions against individuals or entities involved in insider trading. If found liable, the SEC can seek disgorgement of any profits gained from the illegal trading, along with civil monetary penalties. Civil penalties can vary, but they can be significant and often exceed the profits gained from illegal trading.

Other Consequences: In addition to fines and imprisonment, individuals convicted of insider trading may face other consequences. These can include probation, reputational damage, loss of employment, loss of professional licenses (such as securities licenses), and being barred from serving as an officer or director of a publicly traded company.

It’s worth noting that the penalties for insider trading can also be influenced by other laws, such as the Sarbanes-Oxley Act of 2002, which increased the penalties for certain securities fraud offenses. Additionally, state laws may have their own penalties for insider trading. It is important to also note that the laws and regulations regarding insider trading may vary in different jurisdictions, and this specifically focuses on the federal laws governing insider trading in the United States.

What Does a Federal Insider Trading Crimes Defense Attorney Do?

A federal insider trading crimes defense attorney specializes in representing individuals who are accused of insider trading in federal courts. Insider trading refers to the illegal practice of trading stocks or other securities based on non-public information about the company that could impact the value of those securities. It can also involve intentionally presenting false information to the market in an effort to wrongly inflate a stock’s price.

Here are some of the key responsibilities and tasks of a federal insider trading crimes defense attorney:

Legal Representation: The attorney will represent clients who are facing charges related to insider trading in federal court. They will advocate for their client’s rights and interests throughout the legal process.

Case Evaluation: The attorney will thoroughly analyze the evidence and facts of the case to assess the strength of the prosecution’s case against their client. They will identify potential defenses and strategies to challenge the charges.

Defense Strategy: Based on their evaluation, the defense attorney will develop a defense strategy tailored to their client’s specific set of circumstances. This may involve challenging the evidence, attempting to suppress evidence, questioning witness testimonies, or exploring legal arguments to weaken the prosecution’s case. Often experts are used to help make the case. Oftentimes, a mens rea defense is used to show the defendant either acted negligently, accidentally, or otherwise without the requisite criminal intent.

Negotiations: In some cases, the attorney may engage in negotiations with the prosecution to pursue a favorable plea agreement or reduced charges. They will work to protect their client’s interests and minimize potential penalties. This often limits the defendant’s exposure if the defendant were to lose at trial. There are often opportunities to lessen charges and any possible sentence by enlightening the prosecution about aspects of the case currently unknown to them.

Legal Research and Analysis: The attorney will conduct extensive research on relevant laws, regulations, and precedents related to insider trading. They will stay updated on recent legal developments and rulings that may impact the case.

Expertise in Securities Law: Insider trading cases often involve complex securities laws and regulations. A defense attorney specializing in this area will have a deep understanding of these laws and how they apply to the specific case. They will use their expertise to build a strong defense strategy.

Preparing for Trial: If the case goes to trial, the attorney will prepare their client for court proceedings. This includes gathering evidence, identifying, and preparing witnesses, and formulating persuasive arguments to present before the judge and jury.

Mitigating Penalties: If a client is found guilty or pleads guilty, the attorney will work to minimize the potential penalties. This may involve presenting mitigating factors, such as the client’s lack of prior convictions or cooperation with the authorities, to argue for reduced sentencing. Often mitigation or psychological experts will be employed to develop mitigating circumstances.

Appeals: If a conviction occurs, the attorney can also handle the appeals process, challenging any legal errors made during the trial or raising constitutional issues that may have affected the outcome.

Federal insider trading crimes defense attorneys typically have substantial experience in this area of law. The attorneys at The Attorneys For Freedom Law Firm are admitted to practice in federal court and have represented clients charged with federal insider trading crimes for over 3 decades. We have specific and relevant experience in federal court representing defendants in these types of cases. Our attorneys have the experience and knowledge to provide the best possible defense of these charges.

To schedule a Strategy Session with an experienced federal insider trading crimes defense attorney, contact the Attorneys For Freedom today. We can be reached at 480-755-7110.