Investing can be a roller coaster ride, full of soaring heights and steep drops. However, one of the steepest drops for any investor can be finding out you are being investigated by the Securities Exchange Commission (SEC) for insider trading. Read on to learn more about what precisely constitutes "insider trading," what you can do if you're the subject of an SEC investigation, and the various disposition options you may seek.
What does the SEC consider insider trading?
Although the term "insider trading" might conjure mental images of a company CEO selling millions of stock options the night before a merger announcement, in practice, this type of activity may be much more benign. In fact, some forms of insider trading are actually legal.
For example, if you have placed an order to purchase 100 shares of Company X stock on Friday, and are then informed that this stock is set to skyrocket at market open on Monday, your purchase is protected because it had already been set in motion before you received your insider information.
However, if you purchase or exchange a security on the basis of material, non-public information -- and, in doing so, breach a duty of confidence or fiduciary responsibility -- you could be in violation of federal securities regulations.
This is a fairly nuanced area of law, and it continues to evolve. In some cases, you may feel as though you're violating these regulations but are actually well within the law. In other situations, you might find yourself on the receiving end of an investigation notice for engaging in practices you assumed were legal.
How does the SEC investigative process work?
An allegation of insider trading can be brought to the SEC's attention in one of several ways. First, investors may file anonymous tips or complaints with the SEC when suspicious activity is brought to their attention. Next, the SEC monitors and receives regular reports from financial trading firms -- steep spikes in trade volume preceding a large gain or drop or other seemingly coincidental patterns may indicate misconduct. And finally, the SEC also monitors media reports and can begin an investigation after a state criminal investigation for related conduct has ended.
Once an allegation is brought to the attention of the SEC, an investigation is opened. Investigators and attorneys will evaluate the facts at their disposal and determine whether it is probable that a violation has occurred. If you are under investigation, you will be given an opportunity to examine and respond to the allegations against you.
The SEC can choose to either file in federal district court or bring an action against you in an administrative proceeding. In general, a federal lawsuit is more serious and carries stiffer sanctions, including potential prison time for securities violations, while an administrative action is more informal and does not carry with it the risk of jail time. You always have the option to settle with the SEC at any point during either proceeding.
What should you do if you receive notice of an investigation?
If you've been informed that you are under investigation for allegations of insider trading, your first step should be to consult an experienced securities attorney. Your attorney will be able to help you sort out any potential affirmative defenses to the charges, as well as help you negotiate directly with the SEC in an attempt to resolve the claim without the need for formal legal or administrative action.
The majority of SEC cases are resolved with a private settlement agreement and sanction, and many can be dismissed outright after the initial investigation has been completed.
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11 February 2015
It can be hard to know what to do to protect yourself legally in the immediate aftermath of a car accident. You’re liable to be disoriented or in shock, you may be injured, and you’re surely worried about your passenger or the other driver. At least, that’s how I felt. The thing is, the things you say and do in the immediate aftermath of an accident may affect a legal case later. Depending on who’s at fault and what the laws are in your state, you may want to sue the other driver for damages, or you may find yourself being sued. My blog is designed to give you tips for a car accident lawsuit, no matter which side you find yourself on.