Insider trading refers to the buying and selling of securities while in possession of nonpublic material information about the security. The act constitutes securities fraud and can violate several other state and federal statutes. It is also illegal to tip friends and family to the insider information, and also to act on a tip given by an insider. Typical instances of insider trading can involve the following circumstances:

  • Officers, directors, or other employees of the corporation trading stock after learning of significant, confidential developments
  • Trades made by friends, business associates, or family members of insiders after learning the same information
  • Employees of law firms, banks, brokerages. or other businesses who were given the nonpublic information to provide services, and then traded the security
  • Government employees who learned the information because of their role in government and traded the security
  • Other persons who misappropriated the confidential information for the purpose of making trades based on nonpublic information

Insider Trading Prosecutions

Individuals convicted of insider trading face up to 20 years in prison, and a fine of up to $5 million for each violation. Corporations face penalties of up to $25 million. In addition, violators are can usually be charged with mail fraud, wire fraud, other charges of securities fraud, racketeering charges, tax evasion, and obstruction of justice.

If only acting on public information, it is legal for an insider to trade the stock. Rules also allow trades in circumstances where it is clear that the information is not a factor, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith. However, all investments made by insiders must be reported to the U.S. Securities and Exchange Commission (SEC). The SEC treats the detection and prosecution of insider trading as an enforcement priority.

Contact our Law Offices

With public sentiment running against Wall Street, the SEC is often pressured to pursue charges of insider trading, even where none exists. Media scrutiny of the charges can often lead to a conviction by public opinion long before a criminal trial. It is important to find an insider trading attorney in Boston with a national media presence, and who also has extensive experienced in complex financial crimes. Contact our law offices today.

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