You have worked hard to secure financial freedom for yourself and your family. While your efforts have built a successful business, an insider trading charge could leave you penniless. It could also land you in federal prison. If authorities have charged you with violating Section 10(b) of the Securities Exchange Act of 1934, you must act quickly to develop an effective defense.
To secure a conviction on an insider trading charge, prosecutors must prove certain elements. First, they must show you purchased or sold securities. Then, they must demonstrate you had material information that was not available to the public. Finally, for an insider trading charge to stick, prosecutors must prove you had a duty not to trade. To better understand your situation, you should know a few things about each element.
1. Buying or selling securities
You have a couple of options to attack the first element. You could show that what you bought or sold does not fall within the definition of “securities.” Or, you may provide evidence that you neither bought nor sold securities. Because account statements do a good job of showing buying and selling activity, though, this element may be tough for you to disprove.
2. Material information
The information you used to decide whether to purchase or sell securities must be material. That is, it must make a meaningful difference. If an ordinary investor would think the information valuable, it is probably material under the Securities Exchange Act.
3. Nonpublic information
For prosecutors to secure an insider trading conviction, they must show the information you used to buy or sell securities was not available to the public. The information does not necessarily have to be in a prospectus or other published material, though. Company leaks or rumors may make otherwise nonpublic information public.
If you are a company executive or shareholder, you may have a fiduciary duty. On the other hand, you may have insider information without having a legal duty not to use it. As such, you may need to think about your role when preparing your insider trading defense.
The U.S. Securities and Exchange Commission has tremendous resources to bring an insider trading charge. Defending yourself against one can seem daunting. If you can attack any of the elements of the charge, though, you may be able to avoid an insider trading conviction altogether.