Adoption 101: The Legal Fundamentals

5 Things You Need To Know About Insider Trading Charges

15 February 2019

Brayden Miles

In the United States, the federal government has laws and regulations that apply to any conduct that takes place within the country's borders. Someone who breaks one of these laws can be charged with a federal crime. This type of crime is typically investigated by officials from federal agencies. For example, tax-related crimes are investigated by the Internal Revenue Service, the federal agency responsible for administering tax laws and collecting federal income taxes from Americans. One of the major differences between federal and state crimes is that federal crimes often have harsher penalties, which can influence how a criminal defense lawyer approaches the case. Insider trading is just one of many offenses prohibited under the laws of the United States. If you have been charged with this crime, here is what you need to know before you make any decisions.

1. You can be charged with insider trading even if you do not hold an executive position. News reports often focus on powerful executives who have been charged with insider trading, which is the use of non-public information for financial gain. Martha Stewart is one of the most famous examples. Stewart was charged with insider trading after she sold thousands of shares of ImClone stock just one day before the stock price declined drastically. Some of the charges were dropped, but Stewart was convicted of lying to federal investigators and obstructing justice. Although Stewart and other executives are often in the news for insider trading, don't assume that you can't be charged if you are not a high-level executive. It can be something as simple as hearing someone discuss an impending merger or takeover on your daily commute. If that information is not public and you use it to make a profit, you can be charged with insider trading.

2. The penalties for an insider-trading conviction are severe. As noted previously, one of the key distinctions between federal crimes and state crimes is that federal crimes typically have harsher penalties. Insider trading is no exception. According to the Securities Exchange Commission, an individual convicted of insider trading may be sentenced to up to 20 years in prison. Someone convicted of this crime may also be subject to a financial penalty of up to $5 million. 

3. Stocks are not the only securities that can be involved in an insider-trading case. Many of the insider-trading cases that command public attention involve using non-public information to make a profit with stocks; however, someone can be charged with insider trading based on their dealings with bonds, banknotes, and other securities. In broad terms, securities are financial instruments that can be traded and have some inherent value. If your case involves a security other than stocks, be sure to let your defense attorney know right away.

4. There is a form of insider trading that is not illegal. Company officers and directors, as well as anyone who owns more than 10% of a company's registered equity securities, may legally buy and sell those securities as long as they file the appropriate forms in a timely manner. Form 3 is used to report ownership of stock or other securities, while Form 4 is used to report any changes in ownership. Form 4 must be filed with the SEC within two days of the change of ownership. If you filed any of these forms in relation to the securities involved in your insider-trading case, tell your attorney immediately.

5. You may be able to use one of several defenses to an insider-trading charge. Just because you are charged with insider trading does not mean you have to take the charges lying down. One way to defend yourself against this charge is to prove that your trading activities were legal. Your attorney may also be able to argue that the information you used to make trading decisions was publicly available or that it was not material. The right defense for your case will depend on your individual circumstances.

Federal criminal charges are a serious matter, and insider trading is a complex area of criminal defense law. If you have been charged with insider trading, consult with an experienced criminal defense lawyer immediately.

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