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Penalties for Insider Trading

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What Is Insider Trading?

Insider trading is the illegal trading of stock in a publicly held company by a person with inside or advanced information, based on their status as an insider. Such transactions are illegal because they are unfair and undermine public trust in the securities market.

What Law Criminalizes or Penalizes Insider Trading?

Insider trading is a federal crime, and is thus prosecuted in federal court. The Securities and Exchange Commission (SEC) enforces federal laws banning insider trading.

Additionally, some states, California and Delaware, for example, have their own regulations on insider trading. These laws often allow the company to recover from the individual who illegally trading to recover damages and profits from that person.

What Are the Penalties for Insider Trading?

The SEC can obtain a court order forcing a person convicted of insider training to return all the profits they made from their illegal transaction. Furthermore, the SEC can also ask the court to impose a fine of up to three times the amount of the realized profits. Offenders may also face imprisonment and other criminal penalties, since insider trading is considered to be a white collar crime.

State law might also allow companies to maintain a cause of action against an officer, director, or controlling individual in the company. These laws usually allow recovery of profits and a penalty.

How Can a Lawyer Help?

If you have been accused of insider trading or another white collar crime, a criminal defense attorney can advise you of your legal rights and defenses. Additionally, if you are facing a civil action for insider trading, or suspect that someone in your company traded illegally, a business litigation attorney can help with your case.

Photo of page author Gabrielle Hollingsworth

, LegalMatch Legal Writer and Attorney at Law

Last Modified: 05-23-2014 09:28 AM PDT

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