Defenses and Penalties for Federal Insider Trading Charges

Feature Article

If there’s one thing that’s certain about the financial industry, it’s that insider trading is considered one of the most significant illegal activities. Many individuals have lost fortunes and tarnished reputations due to insider trading charges. In this feature article, we’ll take a closer look at insider trading and how federal charges for this activity work. We’ll also explore potential defense strategies individuals can use in such cases.

What is insider trading?

Insider trading refers to the practice of buying and selling stocks based on confidential information that is not known to the public. In such instances, individuals with confidential or privileged information use it to make financial gains. This unfair advantage puts other individuals at a disadvantage, as they do not have access to such information.

The Securities Exchange Act of 1934 substantially sets the definition of insider trading. This act defines insider trading as any security transaction that involves non-public information and has been performed by insiders. The word "insider" refers to individuals who hold senior positions in a company.

Examples of insider trading

There are many examples of insider trading, some of which are widely reported in the news. One example is when a company insider with access to the company’s confidential information purchases shares. This purchasing activity can be assumed to be under the knowledge of confidential information that is not known to the public. Another example includes a situation where a trader receives non-public information about a governmental policy or trade war that could affect prices in the near future and capitalizes on the information to make trades.

How do investigations for insider trading work?

Investigators use sophisticated mechanisms to track down insider trading, which is usually difficult to identify. Investigators often look for patterns in stock trading activities or when individual purchases large volumes of shares at a time. The Securities and Exchange Commission (SEC) monitors insider trading activities, and when they notice questionable trading activities, they can notify the Department of Justice (DOJ) to begin a formal investigation.

Penalties for federal insider trading

Individuals convicted of federal insider trading charges face severe consequences, including significant fines, jail time, and a permanent prohibition on involvement in the securities trade. Those convicted can face up to 20 years in prison and fines of up to $5 million. Additionally, those found guilty of insider trading charges need to give back any gains made through trading-related transactions.

Defense strategies against insider trading charges

Individuals accused of insider trading have several defense strategies they can use to protect themselves. Some defendants use the “mosaic theory” defense, which involves gathering public information from various sources and using it to work out private information. Others opt for the “mistake of fact” defense, where they claim that they made trades based on publicly available information, and that private information did not impact their decisions. Ultimately, the best defense strategy is to seek an experienced and competent attorney who can provide effective legal counsel.

Contact a federal defense attorney

Insider trading charges are severe, and those found guilty face significant penalties. However, it’s essential to understand that everyone is innocent until proven guilty, and competent legal representation can mean the difference between a conviction and an acquittal. If you or a loved one are facing federal insider trading charges, seek legal help as soon as possible. Contact Kolsrud Law Offices today.

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