What to do if you are accused of insider trading

On Behalf of | Jun 3, 2018 | Uncategorized |

A charge of insider trading carries potentially severe consequences. If you have been accused of insider trading, you might be unsure of what the charges mean and what potential consequences you face. You may find the information below useful.

What is insider trading?

Insider trading involves buying or selling a security by someone with insider or nonpublic knowledge of that security. It can also include passing along a tip to someone who then buys or sells a security. However, you must buy or sell that stock to commit insider trading. Maybe you were planning on selling your stock, and then you receive information that will likely increase the stock’s price. You decide not to sell. You are not guilty of insider trading because no securities were bought or sold.

Who is an insider?

An insider is a director, officer, or another employee of the company. If, as an insider, you have information that could affect the stock price of your company, you have an obligation to disclose it to the shareholders of your company or the public. If you do not disclose this information, then you must refrain from trading shares of the security. It would give you an unfair advantage.

Multiple ways to be accused of insider trading

Being given a tip from an insider in the company can also count as insider trading. Martha Stewart was charged with insider trading based on information she was given, which caused her to sell off nearly 4,000 shares of stock. For it to be proven illegal, the prosecution must show you were given nonpublic information from an insider that knew he or she was disclosing illegally, and you also knew that sharing this information was outside the realm of legality.

Even if you receive a tip from a financial advisor, you could still be in trouble with the Securities and Exchange Commission (SEC). If you want to trade stock based on given information, but you are unsure of its origin, you may consider contacting an attorney.

Misappropriation of information

Misappropriation of information is insider trading that often involves people like journalists or analysts. To do their jobs, these people often have access to sensitive information. Maybe someone passes along information about an innovation for a news story you are working on. If you buy stock in that company before the information is available to the public, you may be accused of misappropriating information.

According to the SEC, anyone convicted of insider trading faces time in prison, as well as civil and criminal fines. The maximum sentence is 20 years, and the maximum criminal fine for an individual is $5 million. For a company facing insider trading allegations, the maximum criminal fine is $25 million. Civil penalties are determined by the money gained or lost from the insider trading deal.

If you are facing an insider trading charge, you may consider contacting an attorney experienced in handing white collar crimes. An attorney can help you navigate the law and build a case in your defense.