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How Do Federal Defense Attorneys Handle Insider Trading Charges?

By Spodek Law Group | October 19, 2023
(Last Updated On: October 20, 2023)

Last Updated on: 20th October 2023, 11:43 am


How Do Federal Defense Attorneys Handle Insider Trading Charges?

Being charged with insider trading can be scary. The federal government doesn’t mess around when it comes to prosecuting these white collar crimes. But if you find yourself facing these charges, a good defense attorney can be your best friend.

Insider trading is when someone uses non-public information to make investment decisions. This gives them an unfair advantage over other investors and undermines trust in the financial markets. The Security and Exchange Commission (SEC) takes this very seriously.

If your being investigated for insider trading, or have already been indicted, you need an experienced federal defense attorney on your side. Here’s an overview of how they handle these complex cases:

Understanding the Charges

There’s a few main laws that are used to charge people with insider trading:

  • Section 10(b) of the Securities Exchange Act of 1934 – This is the main anti-fraud provision that prohibits insider trading. It says you can’t use manipulative or deceptive devices when buying/selling securities.
  • SEC Rule 10b-5 – A rule that implements Section 10(b). It lays out what constitutes fraud.
  • Section 14(e) of the Exchange Act – Prohibits fraud in connection with tender offers, like when one company offers to buy another.
  • SEC Rule 14e-3 – A rule implementing Section 14(e) that prohibits trading on material nonpublic information in the context of tender offers.

There’s also wire fraud and conspiracy charges that often accompany insider trading allegations. Your attorney will analyze the specific charges and start crafting the right defense strategy.

Examining the Evidence

The government usually relies heavily on circumstantial evidence in insider trading cases. This includes phone records, trading records, relationships between the accused and original sources of information. Your attorney will look for holes or weaknesses in how this evidence ties you to the crime.

For example, did you buy right before major news broke, indicating you knew it was coming? Or did the trades seem random? Are the sources of information credible and close enough to you to prove you knew non-public info?

Your attorney may hire private investigators and forensic accountants to dig deeper into the evidence. If there’s sloppy linkages or reasonable doubts, those will become the cornerstones of the defense.

Understanding Your Relationships

A key part of an insider trading case is understanding your relationships with sources of material non-public information. This helps establish links and knowledge.

Your attorney will look closely at communication records between you and any alleged sources. This includes emails, texts, phone calls, and in-person meetings. They’ll also thoroughly investigate the nature of your relationship.

For example, if the source is a close family member or friend, that implies you trusted them and knew the info was not public. If it’s a distant acquaintance, that’s easier to argue you didn’t know the info was private.

Raising Reasonable Doubts

Unlike criminal cases which require “guilt beyond a reasonable doubt”, civil insider trading charges use a lower “preponderance of evidence” standard. But your attorney will still look to raise reasonable doubts wherever possible.

For example, they may argue the info you had wasn’t truly material. Or that you didn’t know it was non-public. Or that your trading patterns don’t actually match up with when you received info.

Finding inconsistencies, presenting alternative theories, and highlighting logical gaps can instill enough doubt to avoid liability.

Seeking Weaknesses in Investigative Process

Your attorney will scrutinize the investigation itself for any missteps or oversights. For example, did the SEC miss evidence that could have helped you? Did they fail to interview a key witness?

Any flaws in how the investigation was conducted could raise doubts about the strength of the case. Sloppy police work can sometimes get charges dismissed or overturn convictions.

Negotiating a Favorable Plea Deal

If the evidence is stacked against you, your attorney may advise negotiating a plea deal rather than risk trial. The stakes are high, with insider trading carrying penalties of up to 20 years in prison.

An experienced negotiation lawyer can get charges reduced in return for a guilty plea. Instead of securities fraud, you may plead to a lesser crime with minimal jail time. Other common deals involve no prison but hefty fines or restitution payments.

Cooperating with authorities to share information about others involved can also help secure a favorable deal. But your lawyer will ensure the proffer sessions don’t expose you to further liability.

Mounting an Aggressive Defense at Trial

If you elect to take your case to trial, your lawyer will aggressively attack the prosecution’s arguments and evidence. Their goal is instilling reasonable doubt in the jury.

They may move to exclude certain evidence. For example, showing your trading pattern analysis is based on flawed assumptions. Intense cross-examination of SEC experts and investigators will look for contradictions or lack of hard evidence tying you to the crime.

Your lawyer will also craft an alternative theory of the case. For example, arguing your trades were based on research and analysis, not insider info. Or that someone else was the real source of tips and illegally implicated you.

Understanding the Sentencing Guidelines

If found guilty at trial, your attorney will seek the most lenient sentence under federal guidelines. Factors like:

  • Your level of gain from the illegal trading
  • Sophistication involved in the crime
  • Your acceptance of responsibility
  • Your cooperation with authorities
  • Your prior criminal record

all impact sentencing recommendations. Your lawyer will argue for downward departures from guidelines based on extenuating circumstances. They’ll also highlight your positive traits and contributions to society.

If you lose at trial, appeals to higher courts and habeas corpus proceedings to challenge unlawful detention are still options. Your lawyer will scour the record for appealable legal or procedural issues.

Common grounds for appeal include improper admittance of evidence, lack of sufficient evidence for conviction, and incorrect jury instructions. New information or changes in the law could also open up new arguments.

While appeals are long shots, they aren’t completely hopeless. An experienced appeals lawyer can sometimes get convictions overturned or sentences reduced even after trial.


Facing federal insider trading charges is daunting. But an experienced white collar defense lawyer can help develop the best strategy for your situation. Whether negotiating a plea deal or battling through trial and appeals, they use every angle to get charges dismissed or penalties minimized.

With smart, aggressive representation, even severe insider trading cases aren’t hopeless. The key is partnering with a lawyer who knows how to handle these complex cases in your favor.


SEC Rule 10b-5: https://www.law.cornell.edu/cfr/text/17/240.10b-5

Section 10(b) of the Exchange Act: https://www.law.cornell.edu/uscode/text/15/78j

Section 14(e) of the Exchange Act: https://www.law.cornell.edu/uscode/text/15/78n

SEC Rule 14e-3: https://www.law.cornell.edu/cfr/text/17/240.14e-3

Federal Sentencing Guidelines: https://www.ussc.gov/guidelines/2018-guidelines-manual

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