While the stock market can be hard to navigate and understand, it is still subject to certain laws. As a criminal defense lawyer in Dallas, TX, Henry Wade, of The Wade Law Firm has defended numerous clients charged with white collar crimes, or crimes that are typically associated with business men. Of these crimes is insider trading, which has both legal and illegal aspects.
Legal insider trading
When you hear about insider trading, you may automatically be conditioned to think of criminal actions where executives exchange stock market secrets. Theoretically, it is not illegal for insider trading to take place. Corporate officers, directors, and employees are permitted to buy and sell stock in their own companies. However, when trading stocks within your own company, you must report all your earnings from the trades to the Securities and Exchange Commission (SEC).
The SEC is a government entity put in place to protect investors, and to maintain fair and orderly markets. According to the SEC, all investors, whether large institutions or individual traders, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. As a result, it is required by law that all public companies disclose meaningful financial information to the public. This is done to ensure that all investors have the ability to achieve the same of information about a company before deciding to invest their money into it.
Illegal Insider Trading
Illegal insider trading refers to buying or selling a stock while having the advantage of knowing information about the company that has not been made public. You may have a position within the business that has helped you acquire this information or you may have also been given tips by another party who has knowledge of non-public information. Either way, gaining money, or avoiding a large loss, is considered illegal.
Penalties of Insider Trading
Illegal instances of insider trading can be both civil and criminal offenses. The SEC has urged civil courts to fine convicted individuals up to three times the profit gained, or the loss avoided, as a result of insider trading. In addition to financial penalties, you may also be forced to serve jail time if convicted and be barred from holding an executive position in a public company in the future.
Real Life Examples of Insider Trading
Perhaps one of the most infamous instances of insider trading is so shocking because the crime did not seem to fit the golden image of the criminal. According to SEC documents, in June 2003, Martha Stewart was formally charged with fraud resulting from insider trading that had taken place. The complaint stated that Stewart, who was also a chairman and CEO of her own public company at the time, received insider tips from her stockbroker, Peter Bacanovic, in 2001. Bacanovic informed Stewart that ImClone’s cancer drug had been rejected by the Food and Drug Administration before the information was made public. After learning of the rejection, Stewart sold almost 4,000 shares that she had in the company, which kept her from losing a great deal of money. The SEC estimated that, in total, she avoided losing $45,673. The SEC also alleged that Stewart created an alibi for her ImClone sales, and concealed important facts during SEC and criminal investigations into her trades.
In 2004, Stewart began serving a five-month jail sentence, after which she was also placed on five months house arrest. In addition, Stewart was unable to serve as CEO of her company for five years and was forced to pay a fine.
If an insider trading case is brought against you, it is in your best interest to hire a qualified criminal defense lawyer in Dallas, TX, or your home town, to represent you in a case against the SEC or Department of Justice.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
