Illegal insider trading undermines public confidence in the financial markets and allows insiders to profit unfairly. The Securities and Exchange Commission (SEC) has implemented a whistleblower program that allows individuals not only to report illegal insider trading, but to be rewarded for their efforts.
If you have information about an individual or company that has engaged in illegal insider trading, contact Newman & Shapiro to learn how you could be eligible to claim a reward. You can also take advantage of anti-retaliation protections for disclosing what you know.
What Is Insider Trading – And When Is It Illegal?
Insider trading is one of the more well-known phrases that the popular culture associates with Wall Street wrongdoing. The SEC generally uses the term to describe trading of a security on the basis of material, nonpublic information. An insider is someone, typically an executive, director, or employee of a company, who possesses valuable information about a company or security that is not known to the public. An insider also may pass along information to relatives, friends, and associates. Use of that information to profit in the financial markets is known as insider trading.
These are some examples of illegal insider trading:
- The directors, officers, or employees of a company trade the company’s securities after learning significant and non-public information about the company.
- Insiders tip off relatives, friends, and associates about damaging non-public corporate information, and those individuals – sometimes called “tippees” – sell, or short-sell, the company’s stock before the information becomes public.
- Employees of law firms, accounting firms, or consultants learn information about a company through their services and execute trades based on that knowledge.
- Government employees trade securities after learning confidential information about a company being investigated or about to become subject to a new rule.
The information acted upon must be both material and non-public. “Material” means the information has to be relevant to the transaction or could have an impact on the value of the security. “Non-public” means information considered confidential or not known to the general public. Illegal insider trading happens when someone either breaches a fiduciary duty, or exploits a relationship of trust and confidence, for personal financial gain.
Contrary to what most people think, not all insider trading is actually illegal. Simply because someone is considered an “insider” does not mean every securities trade they execute is illegal. As long as the person does not base their trade off of material, non-public information, their activity does not violate securities laws or regulations.
What Is The SEC Insider Trading Whistleblower Program?
The SEC regularly reviews trading records for suspicious activity that suggests possible illegal insider trading. Like every federal agency, however, the SEC can only do so much on its own. It relies on whistleblowers to expose illegality and protect the integrity of our markets.
People who report insider trading are typically insiders themselves, or those in close proximity to them. Because it is difficult to prove that a transaction was illegally executed on the basis of material, non-public information, whistleblowers are especially valuable.
At the same time, not everyone can be a whistleblower. There are some basic requirements to participate in the program, including:
- The whistleblower must possess original information about the insider trading that is not already known to the SEC. This excludes publicly-known information about an individual’s or company’s wrongdoing.
- The whistleblower must provide the information to the SEC voluntarily, and not in response to an investigation, court order, or other requirement.
- The information must lead to a successful enforcement action with a total monetary sanction in excess of $1 million.
What Rewards Are Available For Whistleblowers?
A qualified whistleblower can collect between 10% and 30% of the total monetary sanction. The exact amount of the reward will depend on several factors, such as the significance of the information and how much cooperation and assistance the whistleblower and his or her attorney provided. Having an attorney is critical not only to building a compelling case for the SEC, but also to negotiating the maximum possible reward. An experienced attorney also will help to maintain your confidentiality, and can help to protect you from unlawful retaliation.
Newman & Shapiro attorneys have extensive experience with numerous whistleblower laws, including those concerning insider trading and the SEC, and they know how to build a credible case to get the SEC’s attention. If you believe you have evidence of insider trading, or you simply have questions about the whistleblower program, we encourage you to call. We will protect your confidentiality and explain your options under the law. Reach out to us today to schedule a consultation.