Los Angeles SEC Defense and Insider Trading Defense
SEC Defense Team Lead
Former DOJ Trial Attorney
If you have been accused of securities fraud or insider trading in Los Angeles, you need effective legal representation. These investigations can quickly escalate into criminal charges. Even if they do not, you could still be facing huge financial penalties for a civil violation, or an existential threat to your livelihood if you are a regulated securities professional.
The SEC defense and insider trading defense lawyers at the national law firm Oberheiden P.C. can provide you or your company with the legal help and advice that you need to invoke your rights and protect your interests in the Los Angeles area.
Insider Trading in Los Angeles
Generally speaking, insider trading is buying or selling securities based on material and non-public information. However, this definition of the conduct does not come from a criminal statute or even a regulation. Instead, it has been derived from section 10(b) of the Securities and Exchange Act of 1934 (currently 15 U.S.C. § 78j). The U.S. Securities and Exchange Commission (SEC) has promulgated regulations to enforce this section, including the far-reaching Rule 10b—5 (17 CFR § 240.10b-5), which forbids “fraud or deceit” in trading securities.
Courts have taken this vague and indeterminate phrase and expanded it even further, making it stretch to include conduct that is now known as “insider trading,” even though doing so created a victimless crime. Nevertheless, this has led to two different types, or “theories,” of what amounts to insider trading.
Violating either of these types can lead to substantial legal liability.
“Classic” Theory of Insider Trading
One of the most straightforward types of insider trading is the so-called “classic theory” of insider trading. This involves a corporate insider – often an executive, officer, or director, but sometimes an employee – who uses material and non-public information that they have about their company to buy or sell securities in their own business, or for some other benefit. If they had a fiduciary duty to disclose that information, then using it to conduct their own trades or passing off that information to someone else for a kickback can breach the duty and amount to insider trading.
Misappropriation Theory of Insider Trading
A more complicated, but further reaching, theory of insider trading is the misappropriation theory. Under this concept of insider trading, you can be violating securities laws if you buy or sell securities with an unaffiliated company based on material information that is not available to the public and that you obtained through a breach of your fiduciary duty to the source of your information.
Perhaps precisely because the misappropriation theory is much broader than the classical theory of insider trading, the SEC has adopted it as its interpretation of insider trading in Rule 10b5—1.
Tipper and Tippee Liability
An issue that often crops up in insider trading is when one person learns of important and confidential information, but then passes it on to someone else rather than using it to trade in securities, themselves.
In these cases, the person passing the information on is the “tipper,” while the person using the information to make a trade is the “tippee.”
Both can be held liable for insider trading: The tipper will have generally broken his or her fiduciary duty to the company by revealing the non-public information. The tippee then breaks their fiduciary duty of confidentiality to the tipper when using the information to trade securities.
However, when information passes from one person to another, it can become very difficult for the SEC to trace who told who. Nevertheless, that does not usually stop them from accusing everyone in the string of information of committing insider trading.
Penalties for Insider Trading
The penalties for insider trading will depend on whether it is being pursued as a civil case by the SEC, or as a criminal case by another federal law enforcement agency like the Federal Bureau of Investigation (FBI) or the Department of Justice (DOJ). Additionally, securities professionals can face administrative action by the SEC for insider trading.
Criminal sanctions are the ones that everyone is the most afraid of. A criminal conviction is the only one that can come with a prison sentence. In the case of insider trading, that prison sentence can be for up to 20 years in federal prison. Additionally, a conviction can come with up to $5 million in fines, if you are an individual, or $25 million if the defendant is a corporation.
However, not all insider trading cases are criminal. The SEC can file a civil lawsuit for insider trading, as well. While this does not carry prison time, the financial penalties can be quite substantial. Not only will you generally be made to disgorge any benefits received from the trade – whether they are profits made or losses avoided – you may also have to pay treble damages for the securities violation.
Finally, regulated securities professionals accused of insider trading can also face internal repercussions from the SEC. These administrative proceedings can lead to a suspension or even a lifetime ban from trading securities. Worse, this threat on your livelihood does not have to pass through a courtroom. The SEC serves as the prosecutor and the judge at the hearing that will determine your future.
FAQs About Insider Trading Defense in Los Angeles
Who Prosecutes Insider Trading Cases in Los Angeles?
It depends on whether the offense is being pursued in civil or criminal court, or just through the SEC’s administrative process.
If the case is being prosecuted as a criminal offense, it will either be the DOJ or the FBI that represents the government against you. The SEC does not have the authority to file criminal charges. However, that does not mean that the SEC will not play a part in the case. The agency will still forward whatever information that it has to the relevant law enforcement agencies.
If the case is being pursued as a civil matter, it will likely be the SEC’s regional office in Los Angeles that files the lawsuit. Located at 444 South Flower Street, this office has jurisdiction over Southern California, as well as Nevada, Arizona, Hawaii, and Guam. This office will also generally handle administrative cases against regulated securities professionals in the Los Angeles area.
What Can Trigger an Investigation?
Insider trading allegations – as well as other securities violations – generally begin in one of three ways:
- An automated inspection of publicly available documents
- Whistleblower allegations
- Investor complaints
Depending on how the case began, you may have a strong initial line of defense against it.
Insider trading allegations that rely on findings from public documents often begin when a computer program using an algorithm flags a transaction or a series of transactions as being suspicious. The problem with these computer programs is that they are often wrong, or fail to take into account all of the context surrounding the trade. As a result, they lead to a lot of false positives that send investigators to your door. While it is possible to explain why the trades were fine and permissible before the case gets too far, the inconvenience and the stress should not be overlooked, nor the potential for the case to escalate.
If the allegations stem from whistleblower or investor complaints, an initial line of defense may be to point out the ulterior motives that drive the informant. Many whistleblowers stand to receive a cut of whatever the government recovers. Investors or even your competitors may be using the SEC to get back at your for prior slights.
Why Doesn’t Oberheiden P.C. Call Itself the Best SEC Defense Team in Los Angeles?
Because we would rather have our results and the skills of our team of defense lawyer speak for themselves. We have a long list of clients who we have successfully defended against groundless allegations of insider trading or other SEC violations. In some cases, we have been able to take a proactive approach to defense and have convinced the prosecutor that there was no basis for any law enforcement action, let alone a criminal case.
Why Hiring Oberheiden P.C. for Your Defense is the Best Move You Can Make
Given these steep penalties that are on the table, hiring an experienced and effective defense team to challenge the evidence against you is critical if you want to protect your future.
The SEC and insider trading defense lawyers at Oberheiden P.C. can help.
Our lawyers have extensive experience representing defendants – from corporate officers and executives to employees and business outsiders and securities professionals – fight against allegations of insider trading. Many of our defense lawyers have long backgrounds working as law enforcement officers in the very government agencies that file charges for these white collar crimes, including the SEC and the FBI. Their intimate, insider understanding of how these investigations usually move forward makes them invaluable to have on the defensive side of the case.
Call Oberheiden P.C. at (888) 680-1745 or contact them online for the legal representation you need against these serious federal charges.