Insider Trading Laws & Charges + Penalities

Insider trading laws in Massachusetts are based upon US federal insider trading laws. This offense occurs when a trade has been influenced by the privileged possession of corporate information that has not been made public yet. The information is not available to other investors, and the person who is using that knowledge is attempting to gain an advantage over others in the marketplace.

In 2000, the SEC adopted new rules affecting both state and federal laws regarding insider trading. Under the new rules, the SEC defines insider trading as a securities transaction that is made when the person who makes the trade is aware of material information that is not public, so is violating his or her duty to keep confidentiality of that knowledge.

For a Free Federal or Criminal Consultation, call me today at 617-472-5775 or use the form below for your free consultation. I will offer you expert help and answer any specific questions you have about your case in all areas of Massachusetts including Boston, Springfield, Cambridge, Quincy, Lowell and national for Federal matters.

Interestingly, the crime of insider trading was not considered illegal in the early 20th century, either in Massachusetts or elsewhere in the US. After the stock market excesses of the 1920s, and a decade of depression, it was banned.

Penalties for Insider Trading

This depends upon the severity of the case and the size of the trades involved. Insider trading penalties usually include a monetary penalty and jail time. In the past few years, the SEC has made a move to ban insider trading violators from ever serving as an executive again at any company that is traded publicly.

Many individuals in Massachusetts will face as much as 20 years for criminal securities fraud. Also, those who are suspected of insider trading usually get charged with mail and wire fraud. This also can lead to a sentence of 20 years in prison.

Insiders also can be charged with general securities fraud, which carries up to 25 years in prison.

Regarding financial penalties, the SEC Act of 1934 gives SEC the power to get a court order to require you to give back the profits you made on illegal trades. The SEC also can ask the court to penalize you as much as three times the profit that you realized.

The SEC Act of 1934 has been amended by the Sarbanes-Oxley Act of 2002. It now includes a fine as high as $5 million for each violation of the act.

What Constitutes Criminal Insider Trading?

For the SEC or the state of Massachusetts to prosecute you for insider trading, there must be proof that you had a fiduciary duty to the firm, and intended to gain from buying or selling shares based upon insider information.

The bottom line is that the insiders are trading on knowledge that the public does not have.

An example of this was in 2003 when ImClone CEO Samual Waksal received seven years in prison and was fined $3 million after he pleaded guilty to insider trading and fraud. Waksal sold his stock in ImClone after he learned that FDA had rejected an application for the firm’s new cancer drug. Waksal had the information before the public did and made trades.

What About Legal Insider Trading?

It should be noted that there are types of insider trading that is legal. This is when corporate insiders play by the rules and buy/sell stock in their own firm. These types of trades happen often, when employees of publicly traded firms own stock i their own companies.

To keep these sorts of trades legal, these insiders have to report the trades to the SEC within a certain period of time. Usually, that is 10 days from the end of the month when the transaction happened.

It is important to note that company employees only can trade stock when the insider information is made public - that is, when the insider has no advantage over other investors.

New Law on Insider Trading

The broad use of expert networks among hedge fund managers led to a new insider trading law in the state. Now, if a hedge fund wants to use an expert network, it must certify that the consultant is not providing confidential information to the investment adviser.

Conclusion

If you have been accused of insider trading at the state or federal level, you should contact the Law Offices of Geoffrey G. Nathan. Insider trading are prosecuted very harshly at both levels today, and you need to have a strong, experienced criminal defense lawyer who can provide you with the strongest defense and the best chance of getting the charges dismissed or a minimum sentence imposed. To arrange an office consultation, contact us now.

Get Your Free Case Evaluation

Be assured of quality representation in criminal cases in all courts. No criminal case should be ignored call 1-617-472-5775 for immediate consultation at no charge. Fee quote to be given right away. Credit cards accepted over the phone for immediate representation.

We respect your privacy and will not share your information with any other parties.

Contact Information

TOLL FREE 1.877.472.5775
LOCAL 1.617.472.5775
FAX 1.928.395.7789

Geoffrey G. Nathan Law Office
132 Boylston Street
Boston, MA 02116

Download my contact information

Get Driving Directions