A wise man once said, “Glass, China, and Reputation, are easily cracked and never well mended.” However, there are ways to defend and repair your reputation against false allegations.
Facing Insider Trading Allegations
An insider trading charge can ruin your career and reputation, lead to serious financial consequences, and culminate in potential jail time. Even the accusation of committing insider trading can have detrimental effects on your life, both personally and professionally. Knowing the ins and outs of insider trading and what to do to defend yourself if you’re accused of it could save your career and reputation.
Insider Trading 101
Insider trading is when you buy and sell securities based on material information that is inaccessible to the general public. The victims of insider trading are investors and the economy. If insider trading is allowed to occur, people will have less trust in the market and be less likely to invest and buy stocks in companies which negatively affects the future of companies and the market as a whole. The Securities and Exchange Commission (SEC) has made the detection and prosecution of insider trading one of its enforcement priorities because of the way insider trading undermines the integrity of the securities markets.
Insider trading can happen in a number of ways, and depending on the country in which you reside, it can be defined differently. For example, in some countries, the definition of an “insider” solely means someone who works within the company with direct access to information. On the other hand, some countries may consider people related to company officials as “insiders”.
In the U.S., the company’s officers, directors, certain employees, certain consultants and certain stockholders (and their family members) are considered “Insiders.”
Some examples of insider trading include:
- The CEO of a company divulges information to a friend (who owns a considerable amount of stock in his company) about the upcoming acquisition of his company. The friend acts on this information by selling all of his shares before the information is made public.
- A scientist buys shares of a stock after learning about positive trial results, but before those results are made public.
- A financial analyst working on a merger deal buys stock in one of the companies involved before the merger is announced, using the confidential information to profit from the expected increase in stock price.
There are some “gray areas” when it comes to insider trading. Committing illegal insider trading comes down to facts and circumstances. A couple of scenarios that explain “gray area” insider trading include:
- You’re standing in line to get a coffee and overhear two executives talking about selling their company and retiring. You then go home and buy up a bunch of their stock. Chances are you are in the clear. Although the two executives should not have been discussing confidential information in a public space, you do not have a duty to ignore a conversation you heard in public.
- You’re riding in a cab, and the driver tells you that he has a hot tip for some stock buys. You take his advice and make a bunch of money. You’re in the clear here as well because taking unsolicited financial advice from a random person is not illegal, but it’s also not very smart.
In order to prove insider trading has taken place, the SEC needs to show that the defendant:
- Bought or sold securities
- Was an insider of the company whose shares were traded
- Knew that the information was material and nonpublic
- Acted with intent to commit a wrongful act, or a reckless disregard for truth
Insider trading is a complex crime to prove, but before allegations are made, a lengthy investigation has taken place. It is important to understand how to defend yourself against allegations and when to enlist the help of a professional.
Defending Yourself Against Insider Trading Allegations
Accusations of insider trading do not guarantee that you will be convicted of the crime. However, every case of insider trading is unique with its own set of circumstances and facts. Acquiring the help of a professional, experienced criminal defense attorney will give you the best chance at fighting the accusations.
A skilled criminal defense attorney will have a comprehensive understanding of the law and be able to help with a defense for the allegations against you. A knowledgeable legal team, like those at the Law Offices of Robert J. DeGroot is qualified to help you.
Are you facing insider trading allegations? Reach out to the Law Offices of Robert J. DeGroot today!
