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Are you familiar with the in and outs of insider trading? - III

In a series of ongoing posts, our blog has been discussing insider trading, a white collar crime that has the decidedly odd distinction of being both universally known and universally misunderstood. In recognition of this reality, we've spent some time providing some basic background information on this topic in order to answer questions and clarify misconceptions.

We'll conclude these efforts in today's post, exploring how insider trading can be treated as a crime rather than a civil offense.

How exactly do investigations into insider trading start?

In general, both the Securities and Exchange Commission, and the Financial Industry Regulatory Authority are constantly on the lookout for activities related to insider trading, combing through immense volumes of trades in search of potential red flags. Should any be raised, officials will make inquiries and conduct investigations.

What happens if the SEC or FINRA suspects a crime has occurred?

In the event either the SEC or FINRA believes that it has uncovered sufficient information to pursue a criminal case, officials will turn over their findings to the Department of Justice. The DOJ, in turn, will then conduct an independent investigation into the matter.

Will the DOJ move ahead with criminal charges once this happens?

The DOJ's decision to pursue a criminal case will ultimately depend upon the findings of its independent investigation. However, experts have identified several unofficial factors that federal officials have historically seemed to keep in mind when making the decision to pursue criminal insider trading charges:

  • The scope of the illegal activity, meaning how many people were involved, how many people were affected, the amount of money implicated and the duration of the alleged misconduct
  • The criminal records of the named parties, looking out for white collar crime recidivists
  • The available evidence and/or the willingness of others to supply it (testify, wearing a recording device, etc.)
  • The roles played by the named parties, particularly whether they served as a fiduciary entrusted with confidential information (executives, analysts, attorneys, etc.)

Here's hoping the foregoing discussion has proven helpful. Always remember to consider speaking with a highly skilled legal professional as soon as possible in the event you find yourself under investigation or facing charges for insider trading or any other white collar crime.

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Darryl A. Goldberg
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