Insider trading involves trading a public company's stock or other securities based on material, nonpublic information. Here is a brief overview from financial crime attorneys with experience in representing those accused of insider trading.
In Texas, How Is Insider Trading Detected and Prosecuted in the Financial Sector? Answers from Financial Crime Attorneys
Both state and federal agencies are the ones primarily at work detecting and prosecuting insider trading in Texas. The Texas State Securities Board (TSSB) is the primary state regulator, while the Securities and Exchange Commission (SEC) oversees enforcement at the federal level. These agencies employ various methods to identify suspicious trading activity.
Regulatory agencies work closely with law enforcement agencies like the Federal Bureau of Investigation (FBI) and the U.S. Attorney's Office. This cooperation ensures that investigations are thorough and that prosecutions are effectively pursued.
How Insider Trading Is Detected
Sophisticated surveillance and monitoring systems are used to track unusual trading patterns and volumes. These systems can flag transactions that occur just before significant company announcements or news releases, which could indicate insider trading.
Both the TSSB's whistleblower program and the SEC's whistleblower program incentivize individuals to report potential insider trading by offering financial rewards and protection from retaliation. Tips from whistleblowers are often the initiating event in these investigations.
Penalties for Insider Trading
Civil Penalties
Civil penalties serve both to deter future misconduct and to compensate victims for their financial losses. A common civil penalty is disgorgement, which mandates the forced repayment of any profits gained or losses avoided due to the insider trading activity. Significant fines can also be levied against individuals and entities found liable. In some cases, courts may also issue injunctions to prevent further illegal activities, which can include barring individuals from serving as officers or directors of publicly traded companies.
Criminal Charges
In instances involving more egregious violations or clear evidence of intentional fraud, law enforcement agencies may pursue criminal charges, which are typically harsher than civil penalties and can include significant prison sentences for individuals convicted. Hefty fines can also be imposed on both individuals and entities, often exceeding the fines levied in civil cases. Courts may also order the convicted party to pay restitution to the victims of their insider trading, aiming to compensate them for their financial losses.
Determining the Severity of Penalties
The severity of penalties is based on several key factors. These include first the scope of the illegal activity: considering the number of trades, the volume of shares involved, and the duration of the illicit actions. The financial impact of the insider trading, encompassing both profits generated and losses avoided, also plays a significant role in determining the severity of the penalty. Additionally, the defendant's level of involvement, whether as the primary actor or a secondary participant, and their history of compliance with securities laws, are taken into account.
The Importance of Legal Counsel
If you are facing accusations of insider trading, engaging legal counsel is crucial. An experienced attorney can help you understand the charges against you, build a strong defense, and potentially negotiate a favorable outcome. For more information, click here.
Financial crimes are serious, so if you've been accused or are being investigated, the sooner you contact a lawyer, the better.