The concept of insider trading as an illegal process can be complicated, as unlike federal crimes like identity theft and counterfeiting, there is no underlying law in the United States Code that specifically defines insider trading as an illegal practice. Instead, the problem of insider trading is enforced using a combination of federal laws that relate to the code of federal regulations and stock exchanges.
The United States SEC, or Securities and Exchange Commission, is responsible for enforcing regulations and laws that relate to stock trades. This agency brings in charges for insider trading according to the specifics of any given case. In understanding insider trading, the SEC notes that there are some instances wherein insider trading can be considered legal. For example, when a director or employee buys and sells securities in their own company this is insider trading from a legal perspective.
Laws and Penalties
In Ohio, insider trading becomes illegal when a security is either sold or bought in violation of a trust or confidence regarding specific non-public information. For example, if a trade is conducted based solely on the use of privileged information, then this is illegal insider trading. Other actions can also lead to insider trading charges, such as tipping people about non-public information, trading securities according to non-public information, and making trades based on non-public information.
In Ohio, the federal regulations that are applicable to make insider trading illegal are 15 USC 78j, and 17 CFR 240 10b-5. Both of these codes address the usage of deceptive and manipulative devices in trading securities. The sentencing guidelines and penalties for insider trading in Ohio treat the crime as a form of economic fraud. That means that the basic prison term for someone convicted of insider trading can be up to 6 months. However, the potential prison terms can increase based on the amount of money gained through the insider trading. For example, the guidelines set in 2015 call for up to 51 months in prison if the insider trading leads to a financial gain higher than $550,000. If it is determined that there is an organized scheme to engage in insider trading, then the prison term can rise to 21 months.
In recent years, the typical punishments for insider trading have been increasing in terms of severity. In 2012, the average sentence for someone convicted of insider trading was 17.3 months, representing a significant increase over the previous five years.
Insider Trading Defenses
It is possible to defend yourself against a conviction of insider trading with the right protection and guidance from a lawyer who has experience dealing with these cases. To many people, insider trading seems like taking advantage of information that other people don’t have, but the SEC have begun to prioritize prosecution because this process works to undermine the integrity of securities markets. Defenses may include:
- The attorney may attempt to prove that you were unaware that the information that you were using in a trade or offering to someone else was actually privileged information. For instance, if you were given a tip from someone else that lead to a trade, you might not have been aware that such information was only available to insiders.
- Your attorney may indicate that there is not enough circumstantial evidence to prove that a case of insider trading has taken place. It is the responsibility of the prosecutor to prove that there are enough elements available to show insider trading, and failing to do so can make a conviction impossible.
- Finally, your attorney might attempt to prove that the trading you took part in was a form of legal insider trading thanks to a series of crucial circumstances.
Statute of Limitations
As with any case for any crime in Ohio, there is a statute of limitations in place that stops an individual from being prosecuted for the act of insider trading after a certain time period has passed. The Securities Exchange Act dictates that as a federal crime, insider trading should have a statute of limitation that lasts for approximately six years. Following the passage of six years after the profits were noticed regarding the insider trade, it should not be possible to prosecute an individual for insider trading. However, if the crime can be linked with other convictions, then it is possible for the statute of limitations in use to be extended. For example, if a conviction of insider trading can be connected with other instances of fraud or even money laundering, this could extend the limitations statute.
Ohio Insider Trading Cases
- SEC says golfer made almost a million dollars from insider trading
- SEC settles with Columbus man in illegal insider trading case
- Retired Dayton executive charged with insider trading
- SEC settles with Dale Schafer and two others in insider trading case
- Supreme Court denies petition to review Court of Appeals decision in favor of Todd Newman in insider trading cas