Experienced Insider Trading Defense Team
Are you being investigated for insider trading? If so, then there is no time to waste in hiring an experienced insider trading defense attorney.
Insider trading allegations are on the rise in the United States, as federal agencies remain increasingly vigilant of warning signs and recent trends. This is especially important as the nation deals with the novel coronavirus and the many new frauds accompanying it as a result.
The Securities and Exchange Commission (“SEC”), Federal Bureau of Investigation (“FBI”), and Department of Justice (“DOJ”) have been at the forefront of insider trading investigations. In addition to conducting parallel investigations, state agencies and law enforcement are also relied upon to assist government investigations for insider trading.
These agencies are quickly responding to individual efforts to utilize technology to perpetrate new insider trading schemes and hide their transactions, deals, and trades. Such an aggressive and vigorous stance puts many individuals and companies at risk of a federal investigation.
Insider trading allegations can ruin a company and destroy an individual’s reputation. It is critical to act as soon as possible to protect your interests.
At Oberheiden, P.C., we have a dedicated and experienced team of insider trading defense attorneys. Our team includes former FBI agents, former U.S. attorneys, former prosecutors, and attorneys with ample experience in both the public and private sectors. We use this interdisciplinary approach to provide our clients with a personalized defense strategy.
Do not fall prey to a government investigation and litigation without a fight. Let us fight for you. Contact Oberheiden, P.C. today to protect your life’s work, business, and reputation.
What is Insider Trading?
Insider trading broadly refers to the purchase or sale of a security while that individual is in possession of material, non-public information involving the security and such information was obtained a breach of a relationship of trust, confidence, or fiduciary duty.
In addition to trading based on “inside” information, the SEC also categorizes “tipping” as insider trading. “Tipping” occurs where one individual—called the “tipper”—provides material, non-public information to another individual; where another individual—called the “tippee”—carries out certain trades based on that information; or where these individuals complete their trades based on misappropriated information.
“Insiders” can be corporate employees, officers, directors, independent contractors, or anyone who owns more than a 10% interest of the company’s securities. The individuals involved in the scheme can include lawyers, accountants, bankers, doctors, or other individuals who would have confidential information that can be provided to others. Investigations can also extend to the family and friends of the insider if that individual misappropriated material, non-public information from the insider.
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder prohibit insider trading. These charges could lead to civil and sometimes criminal penalties for more serious and willful violations. If a federal agency is investigating you for insider trading, retaining an experienced attorney in insider trading and government investigations is your best defense.
What is “Inside Information”
How does the government define “inside information” when determining whether to initiate an investigation for insider trading?
“Inside information” is defined as any information that is considered material about the company and that is not available to the public via press release, news, public filing, online publication or statement, etc.
Critically, this information must have the ability to impact the company’s share price. For instance, information regarding officer salaries is generally non-public but not material; however, information about an upcoming, non-public acquisition would be material. In addition to acquisitions, other examples of information that would be material to share price include earnings reports and information on takeovers, mergers, or an impending legal investigation or litigation.
Another way to think of whether information is “material” is to consider whether there is a reasonable likelihood that an investor would use such information to trade in the company’s securities—in other words, whether the information would affect or impact their decision making.
Lastly, the material information must be “non-public”—meaning there is no public access to the information. Information becomes public when (1) it is disseminated via an appropriate communication means such as the newspaper and (2) the investor has had a reasonable time to process and respond to it. For instance, while an acquisition is material, it is no longer “non-public” if disclosed in a company public statement; but unless and until that disclosure occurs, it is “non-public.”
Therefore, if an individual trades based on this material, non-public information, it could be regarded as insider trading by the government.
What Are Examples of Insider Trading?
There is not one and only one example of insider trading. Agencies such as the SEC consider many factors when deciding whether certain behavior qualifies as insider trading. This determination varies depending on the facts and circumstances of each case.
To illustrate some “insider trading” conduct and scenarios that the government remains wary of, we provide several important examples of insider trading below:
- Trading based on misappropriated material, non-public information obtained (whether obtained from another individual or via computer crimes such as hacking;
- Trading by corporate insiders—officers, directors, employees—immediately after receiving or obtaining material, non-public information involving the company’s future projections, plans, operations, etc.;
- Trading by tipping material, non-public information to another individual—including family and friends—which then causes that other individual to immediately act upon the tipped information by trading securities;
- Trading material, non-public information during mandated blackout periods after a major corporate event; or
- Trading material, non-public information obtained from rendering services to the company where the securities are traded.
The above are only a few examples. If you have questions about whether other conduct could be deemed “insider trading” by the SEC or have questions about the above scenarios, give our Insider Trading Defense Team a call today.
What are the Penalties for Insider Trading?
The penalties for insider trading are severe. Criminal penalties can include a maximum of 20 years imprisonment and a maximum fine of $5,000,000 ($25,000,000 for non-natural persons).
Civil penalties include civil fines, injunction orders prohibiting the party from engaging in future violations, and disgorgement orders demanding the return of the party’s ill-gotten profits.
Miscellaneous penalties could entail debarment, loss of professional licenses, inability to do business with the government in the future, loss of employment, professional disciplinary action, reputational harm, and sometimes deportation.
In addition to government-initiated investigations, private lawsuits are also a possibility.
Insider trading allegation will hold liable the insider who disclosed the inside information to the tippee. The insider’s liability could in some cases extend to the tippee’s illegal trades.
Recent SEC and DOJ Investigations for Insider Trading
Below we highlight a few SEC and DOJ investigations for insider trading:
- August 17, 2020: A former employee of a biopharmaceutical company, Medivation Inc., was charged with insider trading in advance of the company’s announcement that it would be acquired by pharmaceutical giant Pfizer Inc. The individual had purchased several options within minutes of learning confidential information involving the upcoming merger. The individual had sufficient reason to believe that the acquisition would lead to an increase in other company stock prices and acted upon this information leading to profits of $107,066.
- June 7, 2021: The SEC charged a couple with insider trading of the stock of a pharmaceutical company where one of them worked as a clinical trial expert. The inside trades involved confidential information on clinical trial data which revealed negative results. This information was tipped by the insider before the public announcement of the negative results. This tip allowed the defendant and his uncle to avoid losses of $103,875 and $14,434, respectively. The defendants agreed to a settlement of over $325,000.
- September 17, 2021: Former information technology executive pled guilty to insider trading allegations, conspiracy to commit securities fraud, and aiding in preparing false tax returns. Defendant admitted that he conspired with others to trade in the company’s securities ahead of company announcements regarding material information such as drug approvals, financial earnings, and a merger. The conspiracy involved the sharing of material, non-public information in advance of the company’s public announcement. This prompted the trades in the company’s securities. Defendants’ scheme resulted in over $8 million in unrealized profits and losses avoided with the defendant ultimately realizing net profits and losses avoided of over $4.2 million.
- July 9, 2021: A Dark Web user known by the pseudonym “The Bull” was charged with using the Dark Web to solicit, offer, and sell inside information as well as securities fraud and money laundering in connection with this scheme. His plan was to sell the material, non-public information and personally enrich himself by selling membership fees and commissions. Specifically, Defendant had misappropriated stock tips from confidential customer trading information; sold pre-release earnings reports misappropriated from public companies; and attempted to create an online marketplace to pay for, trade, and sell such inside information. He had sold this information to purchasers using encrypted messaging. This case also entailed a parallel SEC investigation where the SEC charged the individual called “The Bull” with selling insider trading tips via the Dark Web.
Need Advice with Insider Trading Allegations?
Insider trading is a serious offense that is vigorously investigated by multiple federal agencies. It can lead to several complications such as fines and penalties, disgorgement orders, permanent injunctions, loss of licenses, termination from employment, and irreputable reputational harm.
Do not wait for a federal investigation to begin. If you have reasons to believe an investigation, indictment, or subpoena is near, contact our team of insider trading defense attorneys.
We have decades of experience in handling countless insider trading federal investigations. Our team is trained to handle complex insider trading cases and provide a personalized defense strategy based on the specific facts of your case.
Call us today or contact our office for a free consultation.