Insider trading is a violation of the Securities Exchange Act. Thus, individuals who have strong evidence of illegal insider trading can report their concerns to the SEC. Regardless of citizenship, any individual or group of individuals can participate in the SEC whistleblower program, possibly earning significant SEC whistleblower awards.
Updated July 18, 2024
Insider trading is a violation of the Securities Exchange Act. Thus, individuals who have strong evidence of illegal insider trading can report their concerns to the SEC. Regardless of citizenship, any individual or group of individuals can participate in the SEC whistleblower program, possibly earning significant SEC whistleblower awards.
Individuals can report with or without a whistleblower attorney’s assistance by filling out a tips, referrals, and complaints (TCR) form online. It’s important to know that for securities fraud whistleblowers to become eligible for an award, they must have an SEC whistleblower attorney represent them in connection with their submission.
The SEC is dedicated to cracking down on insider trading and ensures that markets and participants compete fairly. This enforcement of securities laws instills public confidence and integrity in capital markets. If you know of an illegal stock or options trade that has happened, continue reading our guide below to learn the advisable steps to report it to the SEC.
Contact Allison Lee
a.lee@kkc.com
Ex-SEC Acting Chair Allison Herren Lee Bolsters Kohn, Kohn & Colapinto’s Defense Against Insider Trading and Securities Violations
Kohn, Kohn & Colapinto is excited to welcome Allison Herren Lee, former acting chair and commissioner of the SEC, to our legal team as Of Counsel. Possessing an extensive understanding of the Dodd-Frank Act and the SEC Whistleblower Program, Lee is poised to provide robust advocacy for whistleblowers and help them pursue rightfully-earned rewards.
Steps to Reporting Insider Trading
The process of reporting insider trading is relatively straightforward. However, proving that someone has performed an illegal trade based on insider information can be difficult. Below are key steps whistleblowers can take to bring successful action against a fraudster:
- Confirm “Illegal” Insider Trading – illegal insider trading occurs when an individual trades stocks or securities based on material, price-sensitive information not available to the public to make a profit or avoid a potential loss.
- Determine Eligibility – if a whistleblower seeks a reward, the monetary sanctions received by the SEC must exceed more than $1 million. One or more persons may act as a whistleblower and become eligible for rewards, including foreign citizens.
- Hire an Attorney – an attorney will help you file tips anonymously and ensure you get the maximum award possible. If your identity is known, an SEC whistleblower attorney will protect you from retaliation by working with the SEC.
- Collect Evidence – the Securities Exchange Commission is looking for specific, credible, and timely tips. The more detailed the tip, the greater the chances it will be forwarded and pursued by an investigator and the greater chance of receiving an award.
- Sign Form TCR – the TCR form is a form that a whistleblower fills out, which provides the SEC with pertinent information about insider trading, and the claims they are making against the party in violation of federal securities law.
- Send TCR to Attorney – whistleblowers can hire an attorney to represent them. A whistleblower’s attorney can submit the TCR, ensuring their identity remains anonymous.
- Investigation – once the TCR form is submitted, the whistleblower can maintain their anonymity throughout the investigation. However, if the SEC sanctions the fraudster for over $1 million, the whistleblower must file a Whistleblower Award Application or Form WB-APP. This form is a request for the payment of an award for the information provided.
- Award Application – The SEC will require personal information about the whistleblower with the Form WB-APP. This information will include their identity and proof that the whistleblower provided their attorney with the signed TCR form.
Much of the evidence in an insider trading case is circ*mstantial. Thus, during their investigation, the SEC staff must piece together timelines to tell a cohesive story.
Following an insider trading investigation, the staff presents their findings to the SEC for review, which can authorize staff to bring an administrative action or file a case in federal court.
Award payments to a whistleblower range between 15 and 30 percent of the sanctions collected when monetary sanctions are more than $1 million.
The SEC will post opportunities for whistleblowers to file for an award on their website Notices of Covered Action (“NoCA”). The SEC has made it clear that it is the responsibility of the whistleblower to apply for an award before their hard deadline.
Insider trading is a big crime in the United States and is punishable with a prison sentence of up to 20 years and criminal fines into the millions.
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Frequently Asked Questions
How do I report someone for insider trading?
Whistleblowers with insider trading information submit tips, complaints, and referrals (TCRs) using the SEC’s online TCR system and complaint form. However, to report anonymously and qualify for rewards, a whistleblower must have an attorney represent them in connection with their submission.
What is illegal insider trading?
Illegal insider trading is when an insider has unpublished price-sensitive information and trades in securities listed or proposed to be listed on a stock exchange using that information.
For example, suppose the CEO of a publicly traded firm discloses their company’s quarterly earnings while playing golf with friends. If the friends take this information and trade on it, that is considered illegal insider trading, and the SEC may take action.
Who investigates illegal insider trading?
The SEC conducts investigations into possible violations of federal securities laws. Tips allow the SEC Enforcement staff to investigate and identify individuals involved in a scheme, identify fraudulent transactions, and find points of non-public “material” evidence.
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