Defending Against FINRA Allegations of Insider Trading

FINRA Allegations of Insider Trading: What You Need to Know

The Gravity of Insider Trading Allegations

Understanding the laws related to insider trading is essential for anyone facing such allegations. It helps grasp the gravity of the situation and assists in determining possible courses of action. Legal intricacies must be fully understood to form an effective defense strategy.
One of the primary regulations dealing with insider trading is 17 CFR § 240.10b5-1. This regulation provides guidelines on what counts as trading “on the basis of material nonpublic information” in insider trading cases. Understanding this regulation is key to knowing what legal boundaries exist and what actions might lead to allegations of insider trading.
For someone to be convicted of insider trading, four main elements need to be present:
The defendant received information about a company.
The information was material, meaning it was significant enough to affect an investor’s decision to buy or sell the stock.
The information was not publicly available…in other words, it was “inside information.”
The information influenced the investor’s decision to either buy or sell the company’s stock or securities.

The Role of the SEC

The Securities and Exchange Commission, or SEC, is the federal agency responsible for overseeing and enforcing federal securities laws. When it comes to insider trading, the SEC plays a critical role. It investigates allegations and can bring a civil lawsuit against individuals suspected of engaging in insider trading. This is in addition to criminal charges that individuals may also face.

Potential Penalties

The penalties can be severe and life-altering if you’re found guilty of insider trading. Understanding the range of potential consequences you may face if convicted is crucial.

Criminal Penalties

On the criminal side, insider trading can result in a maximum prison term of up to 20 years. Additionally, you could face a hefty fine, which can go up to $5,000,000. A criminal conviction can lead to imprisonment and financial hardship and severely tarnish your reputation, affecting future employment and personal life.

Civil Sanctions

In addition to criminal penalties, you may also face civil sanctions. Civil penalties can include a fine of up to three times the profit gained or losses avoided due to insider trading activities. This means that if you obtained $100,000 in profit, you could be fined up to $300,000. The concept of “disgorgement” also comes into play, where you may be required to give up any profits gained or losses avoided due to insider trading. This deterrent ensures that individuals don’t profit from illegal activities.

The Importance of Legal Representation

In insider trading cases, the legal complexities are often high, making the role of a competent criminal defense attorney crucial for your defense. The intricate web of laws, regulations, and evidence can make it challenging for someone without legal insights to navigate the situation effectively. For instance, proving that trading was not influenced by material, nonpublic information can involve reviewing various documents, financial reports, email correspondence, and more. Failing to manage these complexities properly can result in severe penalties, including fines and imprisonment.

Legal Strategies for Defense

When faced with insider trading allegations, you have several legal avenues to explore in your defense. Defense attorneys commonly use the following strategies to challenge accusations and protect their clients’ interests.

Challenge the Evidence Presented by the Prosecution

One of the first steps in forming a defense is to critically examine the evidence that the prosecution plans to use against you. Your attorney may be able to identify weaknesses or inconsistencies in the evidence, casting doubt on the allegations. This could involve questioning the reliability of witnesses, challenging the interpretation of financial records, or disputing the timeline of events.

Argue Lack of Intent

Insider trading requires a specific intent to deceive or defraud. Your defense attorney may argue that you lacked the necessary intent, even if you traded on material, nonpublic information. For example, if you received the information inadvertently or without realizing its significance, you may have a valid defense.

Claim Reliance on Advice of Counsel

If you sought legal advice before engaging in the trading activities in question and followed that advice in good faith, you may be able to assert a reliance on counsel defense. This defense requires demonstrating that you:
Received advice that was legal –and–
Relied in good faith on that advice.

Negotiate a Plea Agreement

In some cases, your attorney may advise you to negotiate a plea agreement with the prosecution. This could involve pleading guilty to lesser charges or cooperating with the investigation in exchange for a reduced sentence. While a plea agreement may seem undesirable, it can sometimes be the best option, especially if the evidence against you is overwhelming.

The Bottom Line

Facing insider trading allegations is a serious matter that requires immediate attention and skilled legal representation. The potential consequences, both criminal and civil, can be devastating. By understanding the legal landscape, the role of regulatory bodies, and the available defense strategies, you can better navigate this complex situation.
However, the path forward is not one you should traverse alone. Consulting with an experienced criminal defense attorney who specializes in insider trading cases is crucial. At Spodek Law Group, our team of seasoned lawyers has a proven track record of defending clients against insider trading charges. We leave no stone unturned in building a robust defense strategy tailored to your unique circumstances.