Most people understand that insider trading is a bad thing that can get people in trouble. But fewer understand that it does not always constitute a criminal violation.
In fact, some cases involving insider trading can result in just fines, which may admittedly be hefty. However, most people would agree that fines are preferable to being locked up in prison. Consider the following:
One man received an 11-year prison term stemming from his stock trading based on confidential information about companies like Goldman Sachs that were publicly traded. He allegedly pocketed more than $80 million even though his firm wound up shuttered.
Yet another man, the spouse of Christie Hefner, who at the time was the chief executive officer of Playboy, profited more than $100,000 over five years after capitalizing on "pillow talk" with his wife. Ultimately, he never had to admit to any wrongdoing and just paid a fine. He was never at risk of going to federal prison.
What's the difference? Several things, according to the chair of the Whistleblower Representation Practice who is a former assistant director of the Enforcement Division of the Securities and Exchange Commission. Three primary factors trigger criminal charges for insider trading:
-- How significant the wrongdoing was, e.g., how many individuals were negatively impacted due to the trading, the sum of the money that was involved and for how long the insider trading took place.
-- The availability of evidence and corroborating testimonies of witnesses or co-defendants who can be convinced to turn state's evidence.
-- Whether the person is a recidivist who has previous violations related to securities trading.
After the SEC begins its investigation, the Department of Justice can enter the case, as the two agencies communicate regularly in these cases. Another collaborator in building a case of insider trading are agents with the Financial Industry Regulatory Authority. As America's largest independent regulator, FINRA remains alert to evidence of suspicious trading activity.
With all the eyes on the market and suspect transactions, it's easy to get caught up in a net of insider trading even if you are innocent or your role was minimal at best. Consulting with a criminal defense attorney at the earliest juncture is a wise move.
Source: Forbes, "Insider Trading: Civil or Criminal Crime?," Walter Pavlo, accessed Jan. 20, 2017