The average citizen in North Carolina likely has a negative view of the term insider trading. The truth of the matter is much more nuanced. The financial regulatory system actually acknowledges that legal forms of insider trading may occur. In fact, legal insider trades happen often. However, illegal or at least questionable forms of insider trading can place people in jeopardy with authorities. Civil penalties or even criminal prosecution could result depending on the outcome of an investigation.
Corporations have insiders, defined as people with access to financially consequential nonpublic information about the company or people with ownership exceeding 10% of the company’s equity. These insiders may make legal trades based on their internal knowledge as long as they file the appropriate forms with the U.S. Securities and Exchange Commission.
Almost any person who makes a stock trade based on nonpublic information could face criminal liability. Authorities could accuse family and friends of company insiders who act upon privileged information. Additionally, service professionals, like consultants or accountants with access to a client’s internal information, could knowingly or unknowingly conduct trades that amount to crimes.
The SEC monitors trading activity, especially after companies release earnings reports. Tips also alert authorities sometimes. No matter how regulators detect insider trades, they have the power to launch an investigation. Some cases produce civil suits that may force a defendant to pay a settlement. However, criminal cases can emerge as well, and then penalties could include fines and prison.
The news that you are under investigation by the SEC is naturally alarming. Understanding your legal rights becomes critical at this point. You may need to show authorities that you obeyed the law or consider negotiating a settlement.