NYC Insider Trading Lawyers

Insider Trading: Understanding the Rules and Consequences

To protect the integrity of the financial markets, no one is allowed to use insider information to buy a stock, sell a stock, or otherwise make a decision that may unfairly manipulate its price. Insider trading occurs when an individual receives information that the public may not have access to. It may also occur when an individual receives access to information before it is released to the general public.

Example of Insider Trading

Let’s say that a company is about to release its first quarter earnings at 1 p.m. An earnings report can create volatility in the stock as well as the market as a whole if it is a significant miss or is otherwise not what the market is expecting.

At 11 a.m., you receive word from someone with access to earnings report data that the stock is going to exceed expectations, which should cause the stock to surge. Acting on this information, you buy 100 shares just before 1 p.m.

There are two possible outcomes to this scenario. First, you will make a profit when the stock goes up in value after the earnings report comes out better than expected. Second, you could make a profit as the market sees that someone is buying shares, which will naturally push its price higher regardless of the news.

Penalties for Insider Trading

The penalties for insider trading depend on the scope of the illegal activity as well as the intent to commit fraud. In some cases, an investor may have thought that he or she was merely acting on a tip before making a decision to buy or sell on his or her own. If that is the case, the investor may simply be required to give back the money he or she made on the illegal trade.

However, if the investor was acting to intentionally manipulate the market, fines and jail time could be forthcoming. Restitution may also be part of a sentence if fraud caused retirement funds or individual investors to make decisions based on rigged or manipulated information. It is possible to spend 10-20 years or more in a federal prison with fines of up to $1 million or more. If institutional investing firms are involved in the fraud, those firms may also face fines or other civil penalties.

Your Reputation as a Trader Could Be Ruined

If you are accused of insider trading, your reputation could be smeared or ruined for life. You may also be required to give up the right to call yourself a CPA or any other credentials that you may have earned. Furthermore, you may no longer be licensed as a stock broker or legally have the right to informally manage large sums of money on behalf of other people or entities.

How Can An Attorney Help You?

An attorney may be able to help you fight the charge of insider trading. For instance, an attorney may argue that you were ordered or compelled to engage in trading even if you knew it was illegal. Your attorney may even provide evidence that you tried to act as a whistleblower or otherwise tried to come clean.

Even if this doesn’t get the charge thrown out, your willingness to acknowledge the gravity of the situation could result in a reduced sentence. In some cases, you may be granted immunity or some other sort of plea deal by cooperating with the government in its case against your company or others involved in the insider trading scheme.

Finally, your legal counsel may help you dispute a charge by having evidence suppressed or thrown out. Expert witnesses may be able to challenge or cast doubt about any evidence used against you in trial. This could result in a hung jury or a jury that decides to rule in your favor.

If you have been charged with insider trading, it is critical that you talk to an attorney today. The sooner you consult with legal counsel, the easier it may be to create a defense that can help you beat the charge or otherwise resolve the matter in your favor.