New York City SEC Defense and Insider Trading Defense

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Brian Kuester
Attorney Brian Kuester
New York City SEC Defense Team Lead
Former US Attorney
Former District Attorney
Ellen Comley
Attorney Ellen Comley
Defense Team Lead
Senior Counsel
Roger Bach
Roger Bach
Team Consultant
Former Special Agent (OIG)

Getting accused of insider trading or some other form of securities violation is a serious matter in New York City. The penalties of a criminal conviction are significant, and the financial consequences of a civil or even an administrative enforcement action can cripple you or your company.

You need legal representation.

The insider trading defense lawyers at the national law firm The Criminal Defense Firm have extensive experience defending professionals against SEC enforcement actions, in general, and insider trading allegations, in particular. Many of our attorneys have backgrounds in law enforcement or as prosecutors for the SEC or other federal agencies that investigate insider trading and other white collar crimes.

We can help you beat these charges and protect your future.

Insider Trading

There is no federal statute that forbids “insider trading.” Instead, the crime comes from a securities regulation and the common law process.

Rule 10(b) of the Securities and Exchange Act of 1934 (15 U.S.C. § 78j) gave the U.S. Securities and Exchange Commission (SEC) the power to issue regulations to prevent manipulative and unfair conduct in the securities industry. Acting under this power, the SEC promulgated Rule 10b—5 (17 CFR § 240.10b-5). This regulation forbids the use of “fraud or deceit” while trading, buying, or selling securities.

“Fraud or deceit” is an exceptionally broad phrase, and it became the job of the court system to determine what it meant. In Chiarella v. United States, the U.S. Supreme Court ruled that corporate insiders – an undefined term that meant officers and executives, but that could also extend to employees and potentially others, as well – have a duty to disclose all material information known to them before trading securities of their own corporation or using the information for their own benefit. Trading on the basis of material and non-public or confidential information violates the insider’s duty to the company’s shareholders and amounts to the offense of insider trading.

Subsequent cases have expanded this crime, created through the common law, even further. So far that the illegal conduct discussed in Chiarella only amounts to the so-called “classical theory” of insider trading.

In United States v. O’Hagan, the Supreme Court said that insider trading also included trading in securities of an independent company based on a misappropriation of non-public information divulged from someone inside the company. This so-called “misappropriation theory” of insider trading completely blew up the requirement that only company insiders could commit insider trading. Instead, non-employees and even people who had never heard of the company before could commit insider trading if they learned confidential or non-public information from someone within the company who was breaching their duty of disclosure to the company’s shareholders.

Since these cases drastically widened the limitations of the offense, insider trading prosecutions have exploded. People who never would have dreamed that they were possibly committing insider trading have been charged with serious financial crimes that carry steep penalties.

Penalties for Insider Trading

Insider trading can be prosecuted as a crime, or it can be enforced with a civil lawsuit or even, in some cases, an administrative action by the SEC. The penalties change radically based on how the law is enforced.

If pursued as a crime, insider trading is a very serious charge. A criminal conviction carries up to 20 years in prison. It also comes with a criminal fine of $5 million if you are an individual, or up to $25 million if you are a corporation.

Civil cases do not carry prison time. However, they still carry huge financial penalties if you are found liable for insider trading. You will generally be made to disgorge any benefits from the insider trade – whether they were in the form of profits gained or losses avoided – as well as pay treble damages, or three times the amount at issue.

Regulated securities professionals like stock brokers can also face administration penalties from the SEC. These are limited to your profession, but can still be devastating to your future. You may be suspended or even permanently barred from trading in securities. Worse, because these are all internal to the SEC, there are very few legal rights that you can invoke during the process.

SEC Enforcement in New York City

New York City is one of the world’s largest financial hubs. It should come as no surprise that one of the SEC’s 11 regional offices is right in the middle of New York’s financial district, at 100 Pearl Street. While other regional offices have jurisdictions that cover numerous states, the regional office in Manhattan only covers the states of New York and New Jersey.

As a result, most of the office’s attention is focused on conduct that takes place in New York City. Financial professionals and securities brokers in the Big Apple should be aware of this, as they may be more likely to draw the agency’s eye than they would, elsewhere.

In addition to SEC violations and insider trading allegations, this regional office can help other law enforcement agencies investigate other white collar fraud crimes, including:

  • Hedge fund fraud
  • Accounting fraud
  • Embezzlement
  • Submitting false financial statements
  • Omission of material information from public disclosures
  • Stock market manipulation

Frequently Asked Questions About Insider Trading in New York City

Who Prosecutes Cases of Insider Trading?

When it is prosecuted as a crime, insider trading allegations are generally brought by the Federal Bureau of Investigation (FBI) or the Department of Justice (DOJ). This is because the SEC does not have the authority to charge people with criminal offenses.

However, just because the SEC cannot file the criminal charges does not mean that it will sit on the sidelines. It will still provide the other law enforcement agencies with all of the information and evidence that it has gathered against you. In many cases, this information will form the bulk of the prosecutor’s case.

Can I Be Sued for Insider Trading?

Yes, the SEC’s Rule 10b—5 provides a private cause of action for individual people who have been harmed by your allegedly wrongful trade. This gives other individuals – generally other shareholders of the company whose securities have been traded on the basis of confidential information – the chance to file a lawsuit against you for their losses due to the alleged securities fraud. Shareholders who were not directly harmed can blow the whistle on the alleged insider trade by bringing it to the SEC’s attention, but do not have standing to sue.

Who Can Be an 'Insider'?

Insider trading law has expanded so much that the very concept of an “insider” has shifted away from the person doing the trading and towards the inside information used to facilitate the trade. It has become more helpful to focus on how “inside” the information was, rather than on how much of an “insider” the trader was.

Because of this shift, basically anyone can be an “insider,” including:

  • Company founders
  • High-level executives
  • Business associates of these executives
  • Employees
  • Independent contractors
  • Friends or relatives of any of these groups of people
  • Someone overhearing a conversation about a company’s future

What are Some Common Defenses to Raise to an Insider Trading Allegation?

Thankfully, there are numerous defenses that can be raised to combat an allegation of insider trading. Some of the most common that we have used at The Criminal Defense Firm have been:

  • The information was publicly available at the time of the trade
  • You pieced together the information from public sources
  • You did not rely on the non-public information in making your trade
  • You could not have used the insider information because you did not have access to it before making the trade
  • The trade was pursuant to a pre-arranged purchasing or selling plan, like a Rule 10(b)5—1 Plan

Why Doesn't The Criminal Defense Firm Call Itself the Best SEC Defense Firm?

Because we think that our case results do all the talking necessary. Our attorneys have decades of experience on both sides of insider trading cases, giving them invaluable insights into how these allegations move forward, be they civil or criminal. That experience has translated well for our clients. In many cases, we have been able to determine that a proactive defense strategy would play out well, and have voluntarily disclosed exculpatory evidence that convinced the SEC and other law enforcement officers to completely drop the case against our client.

Hiring The Criminal Defense Firm Can Be Your Best Defense in New York City

Insider trading allegations are serious. They carry huge fines and financial ramifications, could end your career in the securities field, and can even lead to a decades-long prison sentence.

Getting the best defense lawyers on your side is essential.

The insider trading and SEC defense lawyers at The Criminal Defense Firm strive to legally represent defendants in New York City. Our lawyers have extensive experience defending against these serious charges. Better, many of them also have backgrounds as law enforcement investigators and prosecutors who pursued these same types of cases in years past. The lessons that our lawyers have learned from prosecuting insider trading cases gives them invaluable insights into how to defend against them.

Contact us online or call our law office at (888) 680-1745 to get started on your defense, today.

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