Founding Attorney
Insider trading often sounds like a problem reserved for Wall Street elites, but the reality is much broader. Any employee, executive, or even a friend who hears a tip can face federal charges if they trade on non-public information. What starts as a quick stock move can spiral into an SEC investigation and criminal penalties.
This article breaks down the basics of insider trading, why it’s illegal, how regulators detect it, and what the consequences can look like if charges are filed.
What Is Insider Trading?
Insider trading happens when someone buys or sells securities based on material, non-public information. In plain terms, it means trading on confidential knowledge that the public doesn’t have.
Examples of insiders include:
- Corporate executives and directors
- Employees with access to sensitive data
- Friends, family members, or associates tipped off by insiders
There are legal forms of insider trading when corporate insiders buy or sell shares, but properly report those trades to the SEC. What makes insider trading illegal is when confidential information is used for personal gain before it becomes public.
Why Insider Trading Is Illegal
The foundation of the U.S. securities market is fairness. Insider trading undermines that by giving some investors an advantage that others can’t access.
It’s illegal because it:
- Creates an uneven playing field between insiders and the public
- Damages investor confidence in the markets
- Undermines the credibility of financial institutions
- Can ripple through the economy if unchecked
For these reasons, federal securities laws make insider trading a serious criminal offense.
Criminal Consequences of Insider Trading
Insider trading is not just a civil matter. It can carry severe criminal penalties under federal law.
Potential consequences include:
- Prison sentences of up to 20 years for individuals convicted of insider trading
- Fines of up to $5 million for individuals and much higher for corporations
- Forfeiture of profits gained from illegal trades
- Lifetime bans from serving as a corporate officer or director
Convictions can also cause permanent damage to your career, finances, and reputation.
Recent Cases of Insider Trading
While older cases like Martha Stewart’s conviction are well-known, recent prosecutions show that regulators continue to pursue these offenses aggressively. Two recent examples illustrate how seriously these cases are treated:
- U.S. v. Amit Bhardwaj (2023): A former Goldman Sachs banker pleaded guilty to passing confidential deal information to friends, generating millions in illegal profits. He was sentenced to prison and ordered to pay restitution.
- SEC v. Terren Peizer (2023): The founder of a healthcare company was charged with insider trading for using non-public information to sell stock before bad news was released, allegedly avoiding millions in losses.
These prosecutions underscore that insider trading charges are not limited to celebrities. Executives, bankers, entrepreneurs, and even government officials can find themselves in the crosshairs of regulators.
Insider Trading and Proposed Reforms
In addition to prosecutions, insider trading remains a hot topic in Congress. In 2023, lawmakers introduced the Preventing Elected Leaders from Owning Securities and Investments Act nicknamed the “Pelosi Act.” This proposal would ban members of Congress and their spouses from trading individual stocks. While it has not yet passed into law, the bill reflects growing public concern about whether lawmakers should be allowed to trade on information that may not be available to the public.
How Insider Trading Is Detected
The Securities and Exchange Commission (SEC) plays the lead role in investigating insider trading. Detection has grown more advanced over time:
- Monitoring unusual price movements and trading spikes before major announcements
- Using data analytics and machine learning to flag suspicious activity
- Employing wiretaps and undercover operations in complex cases
- Working with whistleblowers who provide inside information
The Role of Whistleblowers
Whistleblowers are often employees or associates who report misconduct to regulators. Federal programs provide protections and even financial rewards for individuals who step forward with evidence of insider trading.
Compliance and Corporate Responsibility
Preventing insider trading isn’t just about avoiding fines. It requires strong internal compliance programs. Companies can reduce risk by:
- Conducting regular training on securities laws
- Monitoring employee trading activity
- Creating clear reporting channels for suspicious behavior
- Promoting a culture of ethics at the top levels of management
Protecting Yourself If Accused
Being accused of insider trading can ntimidating, especially when federal investigators are involved. Having experienced legal representation matters because these cases involve complex financial records, surveillance evidence, and serious criminal penalties.
At Van Elswyk Law, we understand how the SEC and federal prosecutors build insider trading cases, and we will fight to protect your rights and your future. Our founder, Brice Van Elswyk, worked in investment banking for 14 years before becoming an attorney, giving him firsthand insight into how the markets operate and how insider trading cases are investigated. That background allows us to approach these cases with a perspective few defense firms can offer.
Questions About Insider Trading?
If you have questions about what constitutes insider trading, or if you’ve been accused of violating federal securities laws, we are here to help. Contact Van Elswyk Law today to discuss your case and learn your legal options.