How Insider Trading Accusations Can Be Effectively Contested
One of the main priorities of the federal Securities and Exchange Commission (SEC) is to investigate insider trading. Allegations of insider trading can have severe criminal and civil repercussions. Federal courts impose strict penalties, including steep fines and prison terms. A criminal conviction may also lead to civil litigation.
Understanding Insider Trading
Illegal insider trading occurs when a director, major shareholder, or other insider of a corporation who has material information unknown to the general public trades securities in a manner that violates a relationship of trust. Although not specifically defined, material information is regarded as information particular to a company that would be important to an investor who is considering buying or selling stock. Examples of such material information may include:
- Increases or decreases in dividends
- Acquisitions or divestitures
- Stock splits and buybacks
- Winning or losing significant customers or contracts
- Economic results differing from current outlooks
- Business developments
The SEC has prosecuted insider trading cases in California against directors, officers, and employees of corporations; family members, friends, and business associates of corporate insiders; employees of law, banking, brokerage, printing, and other service firms; and government employees who traded securities after discovering confidential corporate information.
Types of Insider Trading Cases
The SEC prosecutes several types of insider trading cases:
- Classic insider trading: Under the classical theory, corporate insiders, such as company directors, officers, and employees, are prohibited from trading securities based on material, non-public information obtained in connection with their positions in the company. This legal theory targets a corporate insider’s breach of duty to the shareholders.
- Tipping and trading: Insider tipping is closely related to insider trading. It involves sharing material, non-public information about a publicly traded company with a person who is not authorized to have that information with the intent to gain some type of benefit. Accurate tipping can result in huge profits for tippees and may also lead to unfair gains for tippers due to pre-arranged agreements to share profits.
Building an Effective Defense
Depending on the circumstances of your case, your criminal defense attorney may be able to raise certain defenses against insider trading charges, such as:
- Lack of material, non-public information: This defense may involve demonstrating that the information was not material or non-public or providing evidence to support the lack of access to such information.
- Pre-existing trading plans: Rule 10b5-1 was established by the SEC in 2000 to allow insiders of publicly traded corporations to set up trading plans for selling their own stock. Insiders with such plans are permitted to sell stock when the number of shares, date, and price have been specified in advance. Adherence to a Rule 10b5-1 plan can serve as a defense against insider trading charges.
- Lack of intent or knowledge: Establishing a lack of intent to commit insider trading can be an effective defense against the charges. Proof of culpable intent by the prosecution is required for all criminal insider trading convictions.
- Challenging the government’s case: Your criminal defense lawyer can carefully scrutinize the evidence presented by the prosecution and identify any weaknesses or inconsistencies in the case.
At Werksman Jackson & Quinn LLP, we provide top-rated defense for individuals facing accusations of insider trading.
Have You Been Accused of a White-Collar Crime?
The experienced criminal defense lawyers at Werksman Jackson & Quinn LLP are well-versed in navigating complex white-collar crime cases. We leave no stone unturned in our investigations and have a strong record of success.
Our Los Angeles insider trading defense attorneys utilize the knowledge of financial and industry specialists to challenge the prosecution’s claims, which may involve conducting forensic analysis of trading patterns and timing. Werksman Jackson & Quinn LLP has been recognized by Super Lawyers in the field of white-collar criminal defense for over ten years in a row.
If you have been accused of insider trading, contact us today at (213) 688-0460.