One need not be the “Wolf of Wall Street” to be the target or subject of a Federal investigation into Insider Trading. While there are many violent crimes that draw the ire of the United States Attorney’s Office and Federal Court Judges, one of the white collar crimes that evokes a similar emotion in law enforcement is Insider Trading. From FBI agents to Magistrate Judges and prosecutors to District Court Judges, allegations of greed and gluttony are pursued with the full force of the law. In fact, over the past decade, the Federal government has ramped up Insider Trading prosecutions. Your Federal criminal lawyer can advise as such or you can simply open up the Wall Street Journal, New York Times or any other local or national newspaper and see for yourself.
- The Federal Court Process From Arrest to Potential Sentence
- Understanding the Federal Arrest Process: The Importance of Knowledgeable Counsel
- Federal Sentencing Guidelines: Understanding Your Criminal Exposure
In recent years, Federal and state law enforcement has made securities prosecutions, such as insider trading, a priority. They have targeted individuals, families, corporations, small businesses, professionals and others who may obtain “material, non-public information” for one reason or another. Most of the time, these transactions are easily explained. Other times, they are not. No matter the circ*mstance, it is critical that if you come under suspicion, you obtain an attorney that is experienced in insider trading doctrine and is well versed in the legal process in both Federal and state court. As former Federal and Manhattan prosecutors, the Federal criminal defense attorneys at Saland Law are expert at handling security fraud matters such as insider trading.
Understanding Insider Trading: The Federal Criminal Statute
Insider trading charges (usual charged Federally as Securities Fraud under Title 18, United States Code, Section 1348) involve the intentional trade (sale or purchase) of any security based upon material, non-public information.
Defining “Security” for the Purpose of Federal Insider Trading Crimes
A security includes common and preferred stock, treasury stock, notes, bonds, debentures, certificates of interest, puts, calls, straddles, options, or privileges on any security, and any security-based swap or other derivate instrument.
When Information is “Material” for Insider Trading Prosecutions
Essentially, any information is “material” if there is a substantial likelihood that a reasonable investor would consider it important to know in making a decision about investing. This can be tricky, as this test is a subjective one. As such, the courts and the SEC (in civil enforcement actions) have not adopted a specific definition or test for materiality. Instead, it is a determination that must be made on a case by case basis. However, certain information routinely has been held to be material, such as mergers, new products, changes in management, bankruptcies, acquisitions, joint ventures, among many others.
It is important to keep in mind that it is not illegal to trade based upon non-public, non-material information, even if the trade is based upon several pieces of non-material information that allows the individuals to obtain non-public, material information. This is called the “mosaic theory” of trading. However, individuals who utilize the mosaic theory may come under scrutiny by Federal prosecutors and regulators, as happened recently to Steven Cohen.
Differentiating Public from Non Public Information
Information is non-public if it has not been disseminated broadly to potential investors in the marketplace. The purpose is to make sure that there is a level playing field when it comes to trading that security. If one person has access to the information, but thousand others do not, the sale price of the security may not accurately reflect the true market value of the security. Therefore, enough time must pass after the information has been put into the public domain to insure that the information has been incorporated into the market price of the security.
Trading “Based Upon” Material Information
To trade based upon material information means that the person or entity who engaged in the trade was consciously aware of the material non-public information at the time of the transaction.
Who is an “Insider”: Company Employees and Non Employees
An “insider” does not have to be an employee of the company or entity whose security is being traded. While not specifically defined, an “insider” is anyone who has a fiduciary duty to the entity based upon his knowledge of material non-public information. This duty “passes on” to anyone that is told or overhears material non-public information by an “insider.” So, if a person hears his neighbor talk about material non-public information and makes a trade of securities based upon that information, that person can be held liable for insider trading (both criminally and civilly) even though they never worked for the company. Basically, the fiduciary duty is “transferred” to anyone who obtains the material non-public information from someone with a fiduciary relationship to the entity.
- Understanding Federal Subpoenas: How the Government Can Force You to Appear
Insider Trading: The Statute and Crime
Insider Trading can be handled civilly (with no chance of prison or criminal conviction) through the administrative process within the Security and Exchange Commission. Penalties can include restitution, fines and debarment. It can be handled criminally as well. Usually, insider trading is prosecuted Federally through the Securities Fraud statute – 18 U.S.C. § 1348 -- which states that anyone who knowingly executes a scheme to defraud any person in connection with any security or obtains by false or fraudulent means any money or property related to the purchase or sale of any security shall be guilty of Securities Fraud and punished by up to 25 years in prison and a fine of up to $250,000.
- Wire Fraud: Title 18, United States Code, Section 1343
- Mail Fraud: Title 18, United States Code, Section 1341
- Health Care Fraud: Title 18, United States Code, Section 1347
- Security Fraud: Title 18, United States Code, Section 1348
- Federal Conspiracy Crimes
- Federal White Collar Crimes
Whether you are a subject, target or merely a witness to or in an Insider Trading investigation by the United States Attorney, the FBI, SEC, or any Federal Agency, your career, professional licenses and your liberty are all potential direct and collateral damage. Simply, not identifying and implementing the proper defense given the allegations you face or a part of can, and often will, compound your legally fragile position. Protect yourself and your future. Contact Saland Law and let experience, knowledge and advocacy work for you.
Call the Federal criminal lawyers and former prosecutors at (212) 312-7129 or contact us online today.
