Phoenix Insider Trading Attorney

What Is Insider Trading?

Insider trading is defined as trading of a corporation’s stock or other securities by individuals who possess confidential or non-public information pertaining to the company. This can also occur in a bond purchase, real estate transaction or any financial transaction. Illegal insider trading allegations have criminal and civil repercussions, possibly facing parallel cases filed by both the U.S. Attorney’s Office and the Securities and Exchange Commission (SEC). This is why insider trading is one of the most commonly convicted white collar crimes.

How Are Insider Trading Cases Discovered?

While all of the stock exchanges in the U.S. have their own surveillance programs and enforcement divisions in place, the SEC asserts nationwide jurisdiction to investigate and enforce the federal securities laws. However, they mainly rely on the self-regulatory organizations (SRO), who use sophisticated computer systems to monitor trading in the nation’s securities markets. These systems continuously survey volume and price movements of all publicly traded stocks. An alert is produced when a price movement in a specific stock exceeds predetermined parameters.

If an alert is generated, the SRO will conduct the following actions:

• Check if any unusual news announcements are made by the company
• Obtain trading records to establish who was trading in the company’s stock before an announcement was made
• See if any of the company’s officers or directors traded in the company’s stock
• Determine if any individuals engaged in trading are associated with broker-dealers

A referral is then made to the SEC, who will begin a preliminary investigation individuals suspected of illegal insider trading without informing them. The SEC doesn’t possess subpoena authority in order to obtain documents or testimony from individuals and publicly traded companies. Therefore, they must rely on voluntary participation. A SEC appointed attorney will contact the company whose securities are the subject of inquiry and determine relationships of each individual within the company.

The first sign an individual is the subject of an insider trading investigation is a phone call from the SEC attorney. While many people answer questions on a voluntary basis, the preferable course of action is to decline cooperation until you consult with an attorney.