Insider Trading Defense
Our federal defense lawyers represent corporate executives, board members, and other individuals in insider trading cases nationwide. If you are under investigation by the U.S. Securities Exchange Commission (SEC) or facing prosecution by the U.S. Department of Justice (DOJ), you need to engage experienced defense counsel immediately.
While media coverage of high-profile insider trading cases has been relatively scarce since the early 2000s, the federal government’s efforts to combat insider trading have not waned. The U.S. Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), the U.S. Department of Justice (DOJ), and other agencies are all continuing to target and prosecute cases of suspected insider trading, and their efforts are leading to convictions and substantial sentences in many cases.
If you are under investigation by the SEC, FBI, or DOJ for insider trading, you need to engage highly-experienced federal defense counsel. At Oberheiden P.C., we have extensive experience representing corporate insiders and others, and several of our attorneys previously prosecuted insider trading and other securities fraud cases on behalf of the DOJ. We are intimately familiar with the statutes and regulations that govern insider trading cases, and we have first-hand experience with the government’s investigative and prosecutorial strategies.
Federal Defense Lawyers with Deep Experience in Insider Trading Cases
When facing allegations of insider trading, it is important to have a clear understanding of the specific allegations against you. Various activities can be characterized and prosecuted as insider trading under federal law—including various activities that occur well before (and even regardless of whether) any trades are made. With our federal defense lawyers’ experience in insider trading and other securities fraud investigations, we can quickly assess the substantive legal issues involved in your case, and we can formulate and execute a defense strategy that is tailored specifically to the allegations at hand.
Today, combatting insider trading remains one of the SEC’s top enforcement priorities. It regularly initiates investigations targeting allegations of insider trading; and, in many cases, these investigations lead to civil or criminal charges for multiple individuals. Due to the SEC’s focus on insider trading and the breadth and complexity of the issues involved in these types of cases, timely developing a comprehensive defense strategy often poses significant challenges. At Oberheiden P.C., we prioritize prompt intervention and defense strategy development, and our attorneys work quickly to make sure that our clients’ risks are no greater than necessary.
Frequently-Asked Questions (FAQs): Defending Against Federal Allegations of Insider Trading
If you are under investigation for insider trading, there is a lot you need to know. Here are answers to 10 frequently-asked questions from our federal securities fraud defense lawyers:
Q: What constitutes insider trading under federal law?
In broad terms, insider trading involves buying or selling securities in reliance on material information that is not available to the general public (referred to as “material nonpublic information” or “MNPI”). More specifically, in order to establish a case for insider trading, federal prosecutors must be able to prove four distinct elements:
- Breach of a fiduciary duty or violation of a relationship of “trust and confidence” in connection with the purchase or sale of a security;
- Use or possession of MNPI in connection with the purchase or sale;
- Knowing or reckless use of the MNPI; and,
- Personal benefit as a result of the unlawful trade.
Importantly, however, in addition to facing federal prosecution for engaging in unlawful trades, corporate insiders and others can face prosecution for other prohibited acts as well. For example, conspiracy charges are common following insider trading investigations; and, in these cases, simply offering or soliciting inside information (also known as “tipping”) can be enough to establish criminal culpability.
Q: Who can be characterized as an “insider” for purposes of a federal insider trading investigation?
Despite its name, insider trading does not necessarily involve illegal activity on the part of corporate insiders. As outlined by the SEC, individuals who may potentially be targeted in federal insider trading investigations include:
- Corporate officers, directors, and employees
- Friends, business associates, and family members
- Employees of law, banking, brokerage, and printing firms
- Government employees
- Political intelligence consultants
- Individuals who misappropriate inside information
Q: What should I do if I have received an SEC subpoena in relation to an insider trading investigation?
In many cases, targets of insider trading investigations first learn that they are under scrutiny when they receive an SEC subpoena. If you have been served with an SEC subpoena, you should review the subpoena carefully in order to determine: (i) whether you are being commanded to testify, produce records, or both; and, (ii) how long you have to respond. Upon receiving an SEC subpoena, you should also promptly engage federal defense counsel to determine whether you have grounds to challenge the subpoena (either in whole or in part) and to assist you in preparing your response.
Q: What triggers an insider trading investigation?
Insider trading investigations can have a number of different triggers. In some cases, the SEC may initiate an investigation independently based upon its review of a company’s public filings or information publicized by the media. In others, the SEC will act on information obtained from another federal agency (such as the DOJ or FBI), or in response to a whistleblower complaint. An investigation may also arise out of evidence obtained in the course of an ongoing investigation targeting someone else.
Q: What is the significance of SEC Rule 10(b)5-1?
SEC Rule 10(b)5-1 is the federal rule that establishes insider trading as a form of securities fraud under the Securities and Exchange Act. Under SEC Rule 10(b)5-1:
“The ‘manipulative and deceptive devices’ prohibited by Section 10(b) of the [Securities and Exchange Act] include . . . the purchase or sale of a security of any [company], on the basis of material nonpublic information about that security or [company] . . . .”
In the years since its promulgation, federal courts across the country have interpreted SEC Rule 10(b)5-1 to encompass a broad range of activities related directly and indirectly to the trading of securities based on material nonpublic information. As a result, when examining potential defenses to insider trading allegations, it is necessary to look beyond the Securities and Exchange Act and SEC Rule 10(b)5-1 themselves and examine all pertinent court decisions that apply.
Q: What type(s) of evidence can the SEC use to prove insider trading?
The SEC uses many different types of evidence to prove insider trading. In addition to witness testimony procured through the issuance of SEC subpoenas, other forms of evidence that often play a key role in federal insider trading cases include:
- Blue sheets
- Monthly account records
- Order tickets
- Market data
- EDGAR filings and other public records
Q: How can corporate insiders (and others) defend against allegations of insider trading?
While there are many ways that federal authorities can prove insider trading, there are numerous potential defenses to insider trading allegations as well. These include statutory defenses, common law defenses, and affirmative defenses established under SEC Rule 10(b)5-1. Broadly speaking, some examples of the types of defenses that can be asserted in response to insider trading allegations include:
- You did not rely on material nonpublic information in making the trade in question
- You did not have access to the MNPI in question
- At the time of the trade, the information in question no longer qualified as MNPI
- You executed a trade in compliance with a pre-arranged plan protected by the SEC Rule 10(b)5-1 safe harbors
- You executed the trade in good faith based on the advice of legal counsel
- You “pieced together” separate pieces of information, none of which independently constituted MNPI
- You lacked the requisite mental state (i.e. intent to defraud investors) to establish culpability
Q: What are the federal penalties for insider trading?
The penalties for insider trading depend on whether the charges filed are civil or criminal in nature. In civil cases, defendants can face fines and treble (triple) damages, among other monetary and administrative penalties. In criminal cases, penalties can include fines of up to $5 million for individuals and up to 20 years of federal imprisonment.
Q: Can in-house counsel represent corporate executives during insider trading investigations?
No, a company’s in-house counsel cannot represent the company’s executives (or any other employees) during an insider trading investigation. Each individual targeted in the investigation must separately retain independent federal defense counsel.
Q: When should you engage federal defense counsel in connection with an insider trading investigation?
When facing an insider trading investigation, it is important to engage federal defense counsel immediately. This will allow your defense team to intervene in the investigation and immediately begin collecting the information needed in order to formulate your defense strategy.
To discuss your insider trading investigation with one of our senior lawyers in confidence, call to arrange a complimentary case assessment today. Our firm is capable of providing insider trading defense on an emergency basis when necessary.
Discuss Your Insider Trading Case with a Federal Securities Fraud Defense Lawyer at Oberheiden P.C.
Are you under investigation for insider trading? To speak with one of our senior federal securities fraud defense lawyers in confidence, call 888-680-1745 or request a complimentary case assessment online now. With offices in Dallas and Houston, and with affiliated local counsel in major cities across the country, we provide representation for federal insider trading cases nationwide.