Illegal Insider Trading
For the purpose of this web page, a corporate insider is an individual who is an officer or employee of a publicly traded company who is aware of significant information which has yet to be released to the public that can influence the company's stock price. When a person is an insider, they are expected to sustain a fiduciary duty to the company and its shareholders while being obligated to preserve in confidence any possession of the non-public material information.
Illegal insider trading is the criminal act of having that privileged knowledge and the usage of it violated in an attempt to make a profit for themselves or others. This information can be acquired through various methods including overhearing conversations (misappropriation theory), being tipped to upcoming business events as well as being a part of meetings where information is discussed and finalized and then passing it on or acting upon it by making a transaction with the company's stock before a public announcement is made. Voluntarily disseminating this insider information to another individual falls under the scope of the same crime. The crime itself falls under the parent category of Securities Fraud which is noted as a White Collar crime.
How is insider trading cases uncovered by the government?
The Securities and Exchange Commission is the primary government entity that investigates insider trading cases as well as any other crimes that relate to securities fraud. Additionally, the major stock markets use self-regulatory organizations such as the Financial Industry Regulatory Authority (FINRA) which oversee the NASDAQ stock exchange as well as other surveillance and enforcement divisions to monitor abnormal trading patterns that challenge predetermined parameters accepted by the exchanges during common everyday trading.
These regulatory groups monitor daily volume of all stock and option trades for every trading vehicle listed on their exchanges on a daily basis. When a large spike in average volume occurs for seemingly no reason but a few days later, or even later that same day a major announcement is broadcast through the news agencies that cover the financial markets, a red flag is recognized, setting the stage for an insider trading inquiry by the SEC or any other of these self-regulatory organizations.
Michael Cohen is an aggressive, experienced Fort Lauderdale insider trading lawyer who has vast experience in cases of securities fraud and all cases related to it as well as all other federal criminal charges. If you are accused or arrested for insider trading Mr. Cohen's law office is the correct choice to fight these types of allegations.
Examples of insider trading
An example of insider trading which would be legal would be if you worked for a publicly traded company where there was chatter that the company's earnings were going to beat expectations projected by Wall Street analysts; but of course this was only speculation. However, if you had direct definitive knowledge from someone in the accounting department or from a board member or other higher-up that this chatter was actually true and you then purchased the company's stock knowing this information to be factual before any public announcement was released it would be considered insider trading, a criminal act. Upon announcement of this information, the stock would most likely go up in price creating an ill-gotten gain on your investment.
Another example of insider trading is if a friend of yours worked for a publicly-traded pharmaceutical company and told you that a major drug was going to be approved by the FDA the following week. This person was in a position of knowing non-public material information but figured who would it hurt to help out a friend in making some money by letting you in on the pending news? So they tell you to buy the company's stock and why you should make the trade. They were guilty of breaking their fiduciary duty when they let you in on it and if you followed their advice and purchased the stock, you were guilty of insider trading if in fact the information was correct. They, themselves would be guilty of the crime if they purchased their own company's stock before the news was circulated to the public.
How does the prosecution prove a case of insider trading?
In order for the prosecution to prove a case of insider trading, three elements must be met. First, it must be proved that the stock or security in question was bought, sold or shorted by the accused. This is known as possession. This first aspect is not difficult to prove because any stock transaction leaves a paper trail. However, if the security was purchased through a proxy, such as a friend or relative this aspect may be more difficult for the government to establish with certainty.
Secondly, that possession was material, meaning that its release would most likely affect the price of the company's stock once publicly disseminated.
The third condition for the government to prove its case is that the information was without doubt non-public. In other words if a sharp criminal defense attorney can demonstrate that the information was spoken about on the public airways or through other media outlets with a positive slant, they may be able to sway the government or a jury that their client made trades on the stock based on that information as opposed to leaked information that they were originally pursuing as the source which their case was built upon.
Penalties for insider trading
Penalties for insider trading can be very punitive. The government sentencing options of up to twenty years in federal prison for each "willful" violation, depending on the individual case. A person who is convicted of the crime can also be fined up to $5million depending on the circumstances of the case and an insider or corporation can be fined up to $25 million depending on the amount of profit that was amassed.
It is important to understand that the SEC or associated prosecutorial bodies will try to have all their ducks in a row before an arrest for this crime is carried out once a red flag appears. They will investigate you and other family members as well as any of your friends and associates who have brokerage accounts to see if you appear to be connected to their investigation. They will examine your trading patterns to see if you ever previously bought the particular stock that's been named in the criminal action as well as how many shares and how often. They'll be looking for anomalies in your trading patterns that may link you to their inquiry.
But there are many defenses to charges of insider trading and in many cases a well-informed federal defense attorney can negotiate a settlement with the prosecution that may involve no prison time. Click here to read an article on my blog that details such a case involving five men from Broward County.
I am always available to help if a charge of insider trading has been filed or if you believe you may be the target of an investigation. When it is essential to immediately contact a qualified criminal defense attorney, your call will be taken 24/7 including all holidays.
My résumé includes close to a combined forty years working as an Assistant United States Attorney prosecuting cases for the government and currently practicing as a criminal defense attorney in Fort Lauderdale, Florida for almost half of that period of my professional career. On the state level, I previously held the office of Assistant State Attorney for Broward County, Florida making my law firm the logical choice to fight all allegations filed by either the State of Florida or any prosecutorial branch of the federal government.
To view my complete résumé and full list of qualifications, and understand what should be your next step if you or someone you care about is accused of insider trading or are facing any other criminal allegations, click here.