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Federal Insider Trading Defense
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Federal Insider Trading Defense: SEC Enforcement and Criminal Charges
Insider trading is one of the most prosecuted securities crimes—and one of the most misunderstood. Trading on “inside information” can mean 20 years in federal prison under securities fraud statutes, plus SEC civil penalties that include disgorgement and industry bars. If your under investigation for insider trading, you need to understand what the government must prove and how to defend yourself.
What Is Insider Trading?
Insider trading is buying or selling securities based on material, non-public information (MNPI) in breach of a duty. The key elements:
Material information – Information a reasonable investor would consider important (mergers, earnings, major contracts)
Non-public – Not yet disclosed to the market
Breach of duty – You had some duty not to trade or tip
Who Can Be Liable?
Classical insiders – Corporate officers, directors, employees who trade on company information
Constructive insiders – Lawyers, accountants, consultants with access to MNPI
Tippers – People who share MNPI with others (even if they dont trade)
Tippees – People who receive and trade on tips
Misappropriators – People who steal or misuse information from any source
Penalties
Criminal: Up to 20 years per count under securities fraud, plus wire fraud charges
SEC civil: Disgorgement of profits, penalties up to 3x profit, industry bars
Career destruction: Permanent ban from securities industry, reputational devastation
Defense Strategies
Information Wasn’t Material
Not all information is “material.” If the information wouldnt have mattered to a reasonable investor, it doesnt trigger insider trading liability.
Information Was Public
If the information was already available through public sources—news reports, analyst research, public filings—it wasnt “non-public.”
No Breach of Duty
Not everyone who trades on information violates a duty. If you obtained information lawfully without any confidentiality obligation, you may not have insider trading liability.
Tippee Defenses
Tippees are only liable if: (1) the tipper breached a duty; (2) the tipper received a “personal benefit”; and (3) the tippee knew or should have known these facts. Recent cases have narrowed tippee liability.
10b5-1 Plans
Pre-planned trading programs (10b5-1 plans) can provide defense if properly established before receiving MNPI.
Parallel Proceedings
Insider trading cases typically involve both SEC civil enforcement and DOJ criminal prosecution—running simultaneously. What you say to the SEC can be used criminally. Strategic handling of parallel proceedings is essential.
Act Now
Insider trading investigations often start with trading pattern analysis. By the time you’re contacted, the government may have substantial evidence. Early intervention—potentially even before formal investigation—can sometimes prevent charges. Contact a federal securities defense attorney immediately.