The attorneys at The Criminal Defense Firm strive to defend brokerages, securities professionals, executives, and company officers in San Francisco from law enforcement actions by the U.S. Securities and Exchange Commission (SEC), including investigations into insider trading. Securities fraud is a wide-reaching offense, and the SEC can pursue civil sanctions or work with other law enforcement agencies to pursue criminal penalties for alleged violations.
Getting effective legal representation can protect your job, your interests, and your future from a costly conviction or civil penalty.
What is Insider Trading?
Insider trading is the criminal offense of buying or selling securities based on important information that was not available to the public. To the surprise of many, though, there is not a specific federal criminal statute that defines the offense of insider trading. Instead, it is an application of section 10(b) of the Securities and Exchange Act of 1934 (currently codified at 15 U.S.C. § 78j) and its attendant SEC regulation, Rule 10b—5 (17 CFR § 240.10b-5). Rule 10b—5 forbids trading securities in ways that involve “fraud or deceit.”
Needless to say, “fraud or deceit” is a very vague term. Prosecutors and investigators at the SEC use that amorphous definition to pursue lots of securities transactions as if they were based on insider information.
For example, securities violations can be committed by people who are not regulated by the SEC, or even by casual stock traders. In one case, Carpenter v. United States, a journalist told some of his friends about an as-yet-unpublished article concerning a major corporation, and his friends traded securities based on that information.
Insider trading can also be committed by people who are not “insiders” at a company. In another case, United States v. Willis, a psychiatrist traded stocks after a patient disclosed information about the company her husband worked for.
What are the Penalties of a Securities Violation for Insider Trading?
The penalties of an insider trading conviction will depend on whether the SEC pursues the case as a civil lawsuit or as a criminal charge.
If pursued as a civil case, you cannot be put in prison. However, the financial penalties can be incredibly steep. You will likely have to disgorge the amount of any benefits you recovered or any losses you avoided from the trade. You may also face treble damages for the violation – a civil penalty of three times the amount at issue.
If pursued as a criminal case, a conviction carries:
- Up to 20 years in federal prison
- A criminal fine of up to $5 million for individual defendants, or up to $25 million if the defendant is a corporation
If you are a securities professional who is regulated by the SEC, the agency can also pursue administrative sanctions against you for alleged insider trading. These penalties can include a suspension or even a permanent bar from the securities trading industry. Importantly, these sanctions can come after an investigation that was entirely internal to the SEC. With no court to ensure that the SEC acts in accordance with the law during the investigation and hearing processes, securities professionals frequently feel that they are at the mercy of the agency with their livelihoods on the line.
The SEC in San Francisco
Securities professionals are especially prone to SEC investigation in San Francisco, where the agency has a regional office at 44 Montgomery Street. This office has jurisdiction over a wide area that spans the following states and regions:
- Northern California
However, much of the office’s enforcement actions happen right in its own backyard. This focus on local activity in San Francisco is largely because of the innovative techniques used by entrepreneurs with start-up companies and technology firms. The high concentration of new start-ups in San Francisco, and especially in Silicon Valley, have drawn lots of securities brokers and venture capital firms. All of this action has made the SEC pay close attention to the area for signs of potential fraud.
Unfortunately for securities traders, this increased scrutiny can lead to an inconvenient and potentially stressful investigation into purely innocent conduct.
FAQs About Insider Trading and SEC Defense in San Francisco
What Usually Triggers an Insider Trading Investigation?
There are three common ways for the SEC or other law enforcement agencies to first become suspicious of insider trading: Whistleblower complaints, investor complaints, and public disclosures.
Both whistleblower and investor complaints often come from disgruntled former employees or clients. These sources of information, especially whistleblowers, are notoriously prone to having ulterior motives for sharing their tip. Whistleblowers often have a financial incentive to bring potentially incriminating evidence to the attention of law enforcement personnel. Undermining the credibility of these informants is a common aspect of a defense strategy in cases that begin with these tips.
More and more often, though, it has been public disclosures that provide the initial suspicion that leads to an insider trading investigation. Law enforcement agencies and the SEC have turned to data mining to spot suspicious patterns in the records that they have access to. Unfortunately for securities professionals, those methods frequently produce false positives that lead to unwarranted scrutiny.
What are Some Common SEC Allegations Made in the San Francisco Area?
In addition to insider trading, some common fraud charges that the SEC levies on securities individuals and firms in the San Francisco Bay area include:
- Investor fraud
- Submitting falsified financial statements
- Omission of material information in public disclosures
- Hedge fund fraud
- Accounting fraud
- Stock market manipulation, including pump and dump schemes and other forms of stock price manipulation
All of these are serious offenses that can carry the potential for decades in prison.
When Should I Hire a Lawyer?
You should hire a lawyer as soon as you become aware that there might be an investigation into your business practices, and definitely before speaking with a law enforcement agent or disclosing any information that they request. By getting a defense lawyer on board early on, you can figure out whether you are facing the potential for legal liability, and determine whether it is in your interests to be proactive in explaining how your conduct is not a securities violation, or whether you should make law enforcement build its own case against you.
Why Doesn't The Criminal Defense Firm Call Itself the Preeminent SEC Defense Firm?
Because we prefer to let our results and the experience of our team of attorneys speak for themselves. Our lawyers have extensive experience both defending and prosecuting insider trading allegations and other financial offenses. The time that many of our lawyers have spent as law enforcement agents give them an invaluable insider understanding of how these cases are built and moved forward. This lets our lawyers predict how prosecutors will pursue your case, and can reveal signs of weakness in their arguments and in their evidence.
That experience has led to a long track record of successes both in the courtroom and outside of it. In many cases, we have been able to convince prosecutors to drop the investigation before it had really begun.
The SEC and Insider Trading Defense Lawyers at The Criminal Defense Firm
The best way to protect your firm or yourself from allegations of securities fraud or insider trading is to get effective and experienced legal representation as soon as possible. No allegation of a securities violation is minor. Even if it is only pursued internally by the SEC as an administrative action, it can effectively end your career selling securities.
The SEC defense lawyers at The Criminal Defense Firm have extensive experience, including backgrounds that involve decades of work prosecuting these same types of cases. Many of our defense lawyers used to work in the SEC, Department of Justice (DOJ), or Federal Bureau of Investigation (FBI) as prosecutors or investigators of white collar crimes, including insider trading. That background as law enforcement personnel gives them the insight that can help you beat the allegations against you. Those years of experience that our lawyers have in prosecuting white collar cases and insider trading allegations lets them predict the prosecutors’ next moves in your case. It also gives them an intimate understanding of the weak points and the potential pitfalls in the charges that have been filed against you. As a result, our firm can determine what is really going to be the best line of defense for your situation – not just the one that appears to be the best for your short-term goals.
Once we see which defensive strategy will be in your best interests, we take every step necessary to advance it to its fullest potency. Some common defenses that we raise against insider trading allegations include:
- The information was not “inside” at the time of the trade
- The trade was pursuant to a valid 10b5—1 Plan
- You did not actually have access to the insider information
- The information was not “material”
No matter where you are in the U.S., the lawyers at The Criminal Defense Firm can help. We are a national SEC defense law firm that can defend your rights and your interests. Contact us online or call us at (888) 680-1745 for help.