It is the US Justice Department and local United States attorneys' offices, not the SEC, that have the authority to bring criminal prosecutions. Under Section 32(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, individuals face up to 20 years in prison for criminal securities fraud and/or a fine of up to $5 million for each "willful" violation of the act and the regulations under it. Only fines, not imprisonment, apply if the defendant can demonstrate "no knowledge" of the rule or regulation that is violated. Corporations face penalties of up to $25 million.
In addition, violators are usually charged with mail and wire fraud (which can lead to a sentence of up to 20 years in prison), more general "securities fraud" (up to 25 years in prison), and possibly even racketeering, tax evasion, and/or obstruction of justice. You can also expect civil penalties to result from the SEC's enforcement action.
Prison terms for insider-trading convictions have lengthened in recent years. According to The Wall Street Journal, from 2009 to 2011 the median jail sentence was 30 months, up from a median term of 18 months during the 2000s. From 1993 through 1999, the median length of prison terms was only just under a year. As explained by a commentary from the law firm Quarles & Brady, tipper and tippee insider trading remains a top priority for the Justice Department.
FAQs
If you are convicted in a criminal insider trading prosecution, you are subject to a maximum of $5 million in fines as an individual (up to $25 million for a business entity), up to 20 years imprisonment, or both fine and imprisonment.
What is the penalty for insider trading? ›
See how we rate investing products to write unbiased product reviews. Insider trading is the selling or purchase of stocks and other securities based on non-public, material insider information. People found guilty of Illegal insider trading can receive up to 20 years of jail time and a $5 million fine.
What is the most severe criminal penalty for insider trading? ›
1[15G. Penalty for insider trading.-- If any insider who,
shall be liable to a penalty 2[which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher].]
What is the penalty for insider information? ›
Criminal Penalties
A person convicted of insider dealing is liable on conviction of indictment to a fine or imprisonment for up to seven years or to both.
What happens if you are accused of insider trading? ›
Criminal and/or civil penalties could result
The penalties for a federal insider trading conviction are very serious. A single insider trading charge could lead to up to 20 years in federal custody. The courts can also impose fines of up to $5,000,000.
What is the penalty for insider trading regulations? ›
According to SEBI, the punishment for insider trading is a penalty by way of a fine of “not less than ₹10 lakh which can be extended up to ₹25 crore or 3 times the profit made from the insider trading transaction, whichever is higher.
What is the jail sentence for insider trading? ›
The maximum fine for a business entity whose securities are publicly traded is $25,000,000. The maximum prison sentence for an insider trading violation is 20 years. Both fines and imprisonment are possible punishments from the SEC for making an illegal insider trade.
What are the damages for insider trading? ›
The maximum civil penalty that can be imposed on a firm when an employee engages in insider trading is the greater of $1 million or three times the amount of the profit gained or loss avoided as a result of the violation.
Who has been prosecuted for insider trading? ›
Cases of insider trading often capture the attention of the media, particularly if the accused party is a public figure. Four cases that captured a significant amount of media coverage in the U.S. are the cases of Albert H. Wiggin, Ivan Boesky, R. Foster Winans, and Martha Stewart.
What are some potential examples of insider trading? ›
A lawyer who represents the CEO of a company learns in confidence that the company will experience a substantial revenue decline. The lawyer reacts by selling off his stock the next day, because he knows the stock price will go down when the company releases its quarterly earnings.
Along with a hefty $1.8 billion fine, several individual traders found themselves headed to jail. To date, this is the largest fine for insider trading in U.S. history. Of that amount, half was set aside for criminal fines and the other half for civil fines related to money laundering and forfeiture actions.
What type of crime is insider trading? ›
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.
Is it insider trading if you overhear? ›
Roughly, it's illegal only if you have some duty not to trade on it. If you acquired the information without misappropriating it (like overhearing it from strangers in a normal public bar), then you're free to trade.
What are the penalties for trading on insider information? ›
A person convicted of insider trading faces up to 20 years in federal prison and a $5,000,000 fine. Criminal prosecutions are brought by federal prosecutors (U.S. attorneys). The SEC can also bring a civil action against the defendant.
What is the penalty for insider trading in the USA? ›
According to the SEC in the US, a conviction for insider trading may lead to a maximum fine of $5 million and up to 20 years of imprisonment. According to the SEBI, an insider trading conviction can result in a penalty of INR 250,000,000 or three times the profit made out of the deal, whichever is higher.
How do people get caught for insider trading? ›
The Securities and Exchange Commission plays a pivotal role in detecting and prosecuting insider trading. The agency monitors trading activities and investigates unusual spikes in trading volume or price changes that precede significant corporate events, such as mergers or earnings reports.
Is insider trading a federal crime? ›
Insider trading is a federal criminal offense. While there are no federal statutes that specifically address insider trading, insider trading falls under Section 10b of the Securities and Exchange Act of 1934 (15 U.S.C. Section 78j), as a type of prohibited “manipulative and deceptive device.”
What is the maximum criminal sanction for insider dealing? ›
The new rules should be applicable no later than July 2016 in all EU countries. 1. Under the new rules, insider dealing and market manipulation, two major forms of market abuse, are punishable by a maximum term of imprisonment of at least 4 years.
