Like many white collar crimes insider trading can be extremely complicated. It is not uncommon for a person to get information and use it on the stock market, without having any idea that they are committing a crime.
If you deal at all with securities, it is critical to have a basic understanding of insider trading so you can avoid these charges and defend yourself against them if necessary.
A recent case
According to a recent report from the Department of Justice, a Chicago physician has been charged with insider trading. Because of his role as a primary field investigator for a biotech company in its test trials, the man allegedly received confidential information about the company and its test trial results.
Allegedly, the doctor “used material, non-public information about the trial results to make more than $134,000 in illegal profits from the purchase and sale of securities in the company.”
Specifically, he is facing federal charges of securities fraud, which can bring up to 20 years in prison if he is convicted.
What is insider trading?
In order to avoid or defend yourself against charges of this kind, it is important to understand the basics of insider trading.
According to the summary provided by the Securities and Exchange Commission (SEC) of Rule 10b-5, insider trading involves “officers and directors or other insider employees…using confidential corporate information to reap a profit (or avoid a loss) by trading in the Company’s stock.”
In short, insider trading at its most basic level is using non-public information to buy and sell stocks for a profit. The purpose of the law is to secure fair trade amongst inventors by keeping all trading and company information available to everyone.
Who is considered an “insider”?
An insider, according to the law, has a couple of aspects. Insiders include officers and directors of the company in question. It also includes anyone who holds 10% or more of the company stock. But the concept of insiders in this law reaches further, including “any employee who has obtained material non-public corporate information.”
What kind of information is considered “insider information”?
Once a defendant is considered an insider, which is highly probable in many cases considering how broadly the law is written and interpreted, the next step is determining whether the substance of the information trading is considered “insider information.”
For information to qualify for an insider trading conviction it must be both non-public and material. Each of these concepts require some explaining:
- Non-public: As the name suggests, non-public information is information not available to the public. If one party had more material information than the other investors, it would create an unfair advantage. Thus, it is illegal to buy or sell stocks based on material information that is not available to the public.
- Material information: Quite simply, material information is any type of information that could substantially affect the value of the company’s stock. This could involve anything from earnings, loans and defaults, changes in regulations, scientific discoveries, new products and other factors.
Defending against charges of insider trading
While the definition of insider trading is relatively simple – An insider using non-public material information to his or her profit in the stock market – the fighting these charges is much more complex.
Depending on the facts of a given case, each of the elements of the crime can be argued to reduce charges or invalidate evidence. If you have been charged with insider trading or any other form of securities fraud, this is not the matter for an inexperienced lawyer. Attorney Darryl Goldberg has experience representing individuals accused of insider trading and handles all types of matters involving allegations of fraud and other white collar crime charges. Contact attorney Darryl Goldberg to discuss your defense.