The Penalties and Defenses for Insider Trading
Advice from a Florida securities fraud attorneyBy S.M. Oliva | Last updated on January 27, 2023
Use these links to jump to different sections:entered a guilty plea in federal court in connection with a $2 million insider trading scheme. According to the U.S. Department of Justice, the former investment bank insider shared nonpublic information regarding “contemplated but unannounced merger and acquisition transactions” with friends, who in turn executed trades for their financial benefit. The defendant in this case faces a maximum sentence of five years in federal prison and a fine of $250,000, or up to twice his “gross gains” from the illegal insider trading. If that sounds like a harsh criminal penalty, consider that in other insider trading cases a conviction can lead to 20 years in prison and a maximum fine of $5 million. And in the case of corporations or other “non-natural persons,” the maximum possible fine skyrockets to $25 million. Additionally, the SEC can seek civil sanctions to “disgorge” the defendant of up to three times the financial gains related to the insider tradin charges.
Understanding the Elements of Insider TradingAs with any criminal charges, the prosecution had the burden of proving the defendant’s guilt beyond a reasonable doubt. In the context of insider trading, this means proving several elements, including:
- there was an actual purchase or sale of securities
- the trade occurred while the defendant was “in possession of” nonpublic information
- that information was “material”
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