Insider trading Lawyers
An underlying, yet seldom stated, concept behind the vast sums invested by countless millions of investors in the U.S. stock market is the belief in the integrity of the market itself. That is, the government has established sufficient rules and regulations along with enforcement methods to ensure honest, fair and fraud free transactions. Insider trading lawyers maintain the balance between those market ideals and the individual rights of investors.
Insider Trading – Not Per Se Illegal
Say the term “insider trading” and most often people conjure up Martha Stewart or the Enron scandal or some other high publicity incident. Although both of those specific matters involved a form of it, all insider trading is not necessarily illegal. In fact, legal insider trading occurs every day throughout the country. Officers, directors, employees and large shareholders all trade their company’s stock on an ongoing basis. What creates an imbalance that pushes insider trading along the continuum to illegal activity is the nature of the information relied on by the insider.
Who is an Insider?
It can be said that an insider, due to his or her position in a company, has privy to some information that is likely to impact the company’s stock share price or be such that an investor would benefit from knowing. In regards to the stock price, this type of information is known as “material information.”
Clearly, based on this definition, many people can be considered insiders. Despite what a company may attempt to do to limit the numbers of actual insiders, executives, managers, accountants, sales personnel, attorneys and many others all may possess material information. However, the fact that information may be deemed material is not the end of the analysis.
If the same information that an insider, say a director, used to make a decision to sell or purchase a stock was available to a non-insider through publically accessible means, the trade, although technically an inside trade, would not be considered illegal. If, conversely, the information was available only because of the trader’s status and could not be discovered by a member of the general public, an illegal insider trade may be said to have occurred.
A “Temporary” Insider
Every stock market investor dreams about learning of a hot tip and acting on it before others find out. Who wouldn’t want to have bought Apple in 1980? What if you overhear your neighbor talking or perhaps some patrons at a nearby table at lunch? Can you use this information? If you do, have you omitted a crime? Maybe.
In the definition of what an “insider” is, the SEC code section includes those who have “temporary” or “constructive” information. Any information that is not public and used to make a trade is prohibited. It doesn’t matter how one comes by the information. It need not be acquired by illegal means. And, importantly, it doesn’t matter through how many levels the information passes. For example, a director may tell his CPA who tells his barber who tells his babysitter. The director fits the classic and obvious definition of an insider, but the CPA, barber and babysitter are all temporary insiders who cannot use the information to make a trade.
Penalties for Violation of Insider Trading Laws
The SEC is empowered to seek civil penalties against an accused inside trader to disgorge the profits made on the alleged insider trade. In addition, based on the facts and circumstances of the case, the court may impose a penalty of up to three times the profit realized on the trade. And perhaps, most significantly, as Marth Stewart found out, criminal sanctions are possible based on the accused’s response to the charges.
If you are accused of insider trading or have reason to suspect you are under investigation regarding a specific trade, you should seek the legal advice of experienced insider trading lawyers.
Mar 31, 2020
May 17, 2018
Spodek Law is a great firm. They are super pragmatic