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Insider Trading

Insider trading is an unusual crime because, unlike federal crimes such as counterfeiting or identity theft, there is no law in the United States Code that specifically makes insider trading illegal. Instead, insider trading is enforced through a combination of federal laws relating to stock exchanges and the Code of Federal Regulations. Even without specific laws against it, high profile insider trading cases like the one brought against Martha Stewart in 2003 have made insider trading a well-known and notorious crime.

What is Insider Trading?

The United States Securities and Exchange Commission (SEC) is in charge of enforcing laws and regulations related to stock trades and is the agency that brings charges for insider trading. In defining insider trading, the SEC notes that there are times when insider trading is perfectly legal. When a corporate officer, director, or employee buys and sells securities in their own company it is considered insider trading. If the stock is bought or sold according to the federal regulations, then it is legal insider trading.

According to the SEC, insider trading becomes illegal when a security is bought or sold in violation of trust or confidence while in possession of material, nonpublic information about the security. Other actions that could lead to insider trading charges include tipping others about nonpublic information, trading securities based on tipped nonpublic information, and making securities trades based on misappropriated nonpublic information.

The law and federal regulation that are applied to make insider trading illegal are 15 U.S.C. § 78j and 17 CFR 240.10b-5, both of which address the use of manipulative and deceptive devices in the trading of securities. Since there is no clear definition of what is considered illegal insider trading, the definitions have been shaped by federal case law. In an effort to clarify what would be determined to be insider trading, the SEC has provided examples of the types of cases it generally prosecutes. Examples include:

  • Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant and confidential corporate developments.
  • Friends, business associates, and family members who traded securities after receiving information about significant and confidential corporate developments from officers, directors, or employees of that company.
  • Employees who misappropriated information regarding significant and confidential corporate developments from their employer and then traded securities in the company based on that knowledge.

What are the Penalties for Insider Trading?

The Securities and Exchange Commission has made the detection and prosecution of insider trading one of its enforcement priorities. Since the laws and federal regulations do not specify a penalty for insider trading, it is necessary to look to the United States Sentencing Guidelines to determine potential prison sentences.

The Sentencing Guidelines treat insider trading as a sophisticated economic fraud. The base prison term for insider trading is from 0 to 6 months, but the potential prison terms steadily increase based on the amount of money that was gained by the insider trading. As an example, the 2015 Sentencing Guidelines call for 41 to 51 months in prison if the insider trading lead to a financial gain of more than $550,000. If it is determined that there was an organized scheme to engage in insider trading, then the base prison term rises to 15 to 21 months and increases according to the amount of money gained.

In 2014 the New York Times published a story detailing how the punishments for insider trading have been increasing in severity. The article focused on a Reuters’ study that showed the average prison sentence for insider trading from December 2007 to December 2012 was 17.3 months. The average was a 31.8 percent increase over the average sentence for the previous five years. The longest prison sentence imposed for insider trading so far came in 2012 when Matthew Kluger, a lawyer who worked on mergers and acquisitions of publicly traded companies, was sentenced to 12 years in prison.

How a Columbus Insider Trading Attorney from LHA Can Help

Insider trading may seem like simply taking advantage of information others don’t have yet, but the SEC prioritizes prosecution because insider trading works to undermine the fairness and integrity of the securities markets. Since the legal standards for insider trading prosecutions have been set mainly through case law, you will want a lawyer who can handle the complex facts and legal issues. The Ohio federal criminal defense lawyers at Luftman, Heck & Associates have years of experience handling federal cases and reaching the best possible outcomes for our clients.

Trust a Skilled Columbus Insider Trading Attorney from LHA to Protect Your Rights Today! Call Now.

If you have been charged with a federal crime, you’re probably wondering what your options are. Any one of our Columbus insider trading attorneys at Luftman, Heck & Associates has years of experience handling these types of cases and winning optimal outcomes for our clients. Call Ohio federal crime lawyer Chase Mallory today for a free consultation. To contact him or another Columbus criminal defense attorney, call us at or email us via advice@columbuscriminalattorney.com.

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