In 2003, a stockholder of biopharmaceutical company ImClone Systems was found guilty of insider trading. The guilty decision was based on her selling of her stocks afer she was tipped by a broker at Merrill Lynch that the chief executive officer (CEO) of ImClone Systems sold all his shares of the company. The convicted stockholder saved herself from losing as much as $45,673 due to her early sale of 4,000 shares of her stocks; she was, however, fined $30,000 and sentenced to five months imprisonment.
Insider trading refers to the unfair practice of making investment decisions based on non-public or undisclosed information about a company’s securities and/or stocks. An insider, who has access to valuable non-public information on stocks or other securities of the corporation where he/she is employed or connected, can be a person, like a broker, a client, a key employee, an executive, a director or a major owner of stock; it can also be another entity, though, like a bank, a law firm or a government institution. Insider trading is illegal because, first, it gives tipped individuals a definite market advantage over common investors and, second, it violates the trust investors place in the securities market and undermines a sense of fairness in investing.
According to the website of the U.S. Scurities and Exchange Commission (SEC), “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”
Insider trading, however, is not always considered illegal. “The legal version is when corporate insiders, officers, directors, employees and large shareholders, buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. Many investors and traders use this information to identify companies with investment potential, the theory being, if the insiders are buying the stock, they must know more about their company than everyone else, so it is a good idea to buy the stock.”
The SEC monitors illegal insider trading activities by looking at the trading volumes of stocks. Volume of stocks usually increases after information on company securities is released to the public. If volumes increase dramatically, however, despite absence of public information, this will be interpreted by the SEC as a warning flag. This will then be investigated by the SEC to find out if illegal insider trading was committed.
As explained by the law firm Horst Law, acts of securities fraud are investigated by the Securities and Exchange Commission. Due to limited resources, the SEC is not able to effectively prevent securities fraud, but instead reacts to cases after they occur. As such, it is not uncommon for people to contact a criminal defense attorney before charges are even brought simply because they have become the target of an investigation. Many times, seeking help early can prevent charges from being filed in the first place.
Once you come to know that insider trading charges have been brought against you, you should immediately begin working with an experienced lawyer to develop a legal strategy that will challenge and combat those charges.Read More