Insider Trading

white collar criminal defense attorney orlando

Insider trading relates to corporate insiders or investors on Wall Street using private knowledge to profit from changes in the stock market. This white-collar crime involves earning large amounts of money through the trade of information not yet known to the public. The Security and Exchange Commission (SEC) prohibits such activity under Rule 10b-5, which forbids committing securities fraud against public investors who do not know about the traded information.

A person tied to an investigation of insider trading may face federal charges that can lead to drastic penalties. If you believe the federal government and/or the SEC is investigating you in connection to insider trading, quickly find yourself a qualified defense lawyer to preserve your reputation.

What is 10b-5 Fraud?

According to the Securities Exchange Act of 1934, any of the following actions are unlawful when conducting business involving stocks and securities:

  • Using methods or ways to directly or indirectly defraud
  • Make false statements to influence purchases or sales of securities
  • Withhold information that is relevant to securities transactions
  • Conduct business in a way that deceives others

Typically, insider trading occurs when a corporate insider uses non-public material information to trade securities of his corporation. This is considered a “deceptive device” under section 10(b) since the insider built relationships with the corporate shareholders based on the trust and confidence earned from having access to confidential information due to their position in that company.

Elements of Insider Trading

The government must prove insider trading was committed and did so willfully to return a conviction. Three basic elements must be met to prove insider trading:

  • The defendant engaged in a securities transaction
  • The defendant possessed material nonpublic information
  • The defendant violated a duty to refrain from engaging in a securities transaction while in possession of material and nonpublic information

The SEC permits a person to engage in trading securities after publicizing the insider information not known to public shareholders. A person who receives nonpublic information in the form of “tips” from insiders and acts upon them may also be tried for insider trading.

How the SEC Discovers Insider Trading Violations

Even though there are many different ways the federal government regulates securities, the SEC is the principal investigative and enforcement body of federal securities laws. The SEC relies upon self-regulation on the part of the securities industry to support their efforts in cracking down on insider trading.

All U.S. stock exchanges have divisions to maintain current market surveillance and enforcement. There are also similar groups in the Financial Industry Regulatory Authority (FINRA). These groups regulate dealer network securities traded on the Nasdaq electronic system. When an industry regulates its own securities, they are called a self-regulatory organization (SRO).

Stock exchanges rely on advanced computer systems to expose insider trading violations. These systems regularly track publicly-traded stocks’ volume and pricing trends. FINRA’s trade monitoring of U.S. securities markets also uncovers these types of crimes in a similar method. An alert generates when a stock’s price fluctuations exceed predicted expectations. This causes SRO staff to watch carefully and look for any news or company announcements that follow this unexpected pricing activity. Data from these systems are analyzed by professionals who conduct their own investigations before the government steps in to perform their own insider trading investigations.

Experienced Insider Trading Defense Attorneys

The SEC demonstrates a zero-tolerance approach for insider trading through their consistent pursuit of such cases. You should not wait until you have been charged to retain counsel, but do so the moment you know an investigation is underway. Insider trading is a severe type of fraud which requires the expertise of a highly-qualified federal defense attorney to protect your interests.  

Lawyers with The Umansky Law Firm have more than 100 years of combined experience defending those accused of criminal offenses throughout Central Florida. We take on state and federal misdemeanor and felony cases. Our goal is to protect your reputation and your future against the worst consequences a conviction can impose on your life. Call (407) 228-3838 or complete our contact form for a free case evaluation.