In Boston, insider trading is treated as a serious criminal offense. Although considered to be among the “white crimes,” a conviction for insider trading can have significant negative judicial and non-judicial consequences for the accused.
In the United States, the Securities and Exchange Commission, or SEC, is the federal agency responsible for oversight and enforcement of the securities market. If you own stock of any kind, the SEC is the agency that is in charge of protecting your investment and maintaining fair and efficient markets. The SEC is also responsible for investigating claims of fraud or illegal activity involving the purchase, sale, or trade of securities. Insider trading was made illegal almost a century ago by the Securities Exchange Act of 1934. According to the act, “insider trading is illegal when a person trades a security while in possession of material nonpublic information in violation of a duty to withhold the information or refrain from trading.”
Not everyone agrees that “insider trading” should be illegal; however, until the current laws are changed it remains a violation of United States federal law. The rationale behind making insider trading illegal is that it protects the average investor from making investment decisions without all the pertinent information. More to the point, it prevents those who are privy to “insider information” from capitalizing on that information. By way of illustration, imagine that you are considering the purchase of a start-up company (we’ll call it company XYZ). Based on the public information made available on XYZ it appears to have a solid business model, have competent leadership, and a healthy financial statement. One reason you are considering a significant investment in XYZ is because the Chief Executive Officer, or CEO, has a proven track record of turning start-ups into profitable ventures. One month after making a sizeable stock purchase, the CEO leaves the company and your stock value plummets. As it turns out, a colleague of yours is a distant relative of the CEO and caught wind of his impending departure from the company. He, therefore, sold all of his stock last week while the value was at its peak. You lost a small fortune and your colleague gained a small fortune because he was privy to information to which you were not.
The law tries to level the playing field by prohibiting insider trading. Section 32(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, makes insider trading a federal crime. If convicted, an individual faces up to 20 years in prison for criminal securities fraud and/or a fine of up to $5 million for each “willful” violation of the act and the regulations under it. In addition, you could lose your professional licensing and, in essence, your career for a violation of the insider trading laws. If you have been accused of insider trading in Massachusetts, contact an experienced federal criminal defense attorney immediately to discuss your legal options.
- Karen Read
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