Insider trading is committed when the following four elements of a crime are met:

1. A breach of fiduciary duty or violating of the trust of someone in connection with a purchase or sale.
2. The use of material or non-public information for purchase or sale.
3. Knowing or reckless use of material that is public information when trading.
4. Personally benefiting from an unlawful trade, either as a direct profit or tipping off someone who has benefited.

Insider trading occurs when someone receives investment information that is unavailable to the public and buys or sells based on said information.

A person facing insider trading accusations may face parallel lawsuits from both the SEC, or Securities Exchange Commission, and the U.S. Attorney’s office. Lowther | Walker’s insider trading lawyers handle federal level cases and will answer any questions you may have about your case.

If you’re facing allegations of insider trading or work in a position where securities regulations affect your daily activities, having an experienced insider trading attorney is essential. These cases involve complex federal securities laws with severe penalties, including substantial fines and imprisonment. An attorney who specializes in this area understands the nuances of securities regulation and can protect your rights while navigating investigations by the SEC or Department of Justice.

Here’s why you need specialized legal representation:

• Violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 carry severe penalties 

these are the primary federal provisions prohibiting insider trading, and convictions can result in up to 20 years imprisonment and fines up to $5 million for individuals.

• The Insider Trading Sanctions Act and Insider Trading and Securities Fraud Enforcement Act authorize civil penalties

the SEC can seek civil penalties up to three times the profit gained or loss avoided, making the financial consequences devastating even without criminal charges.

• Early intervention can prevent charges from being filed

An experienced attorney can communicate with investigators during the preliminary stages, potentially resolving matters before formal charges under federal securities laws are brought.

• Section 16(b) of the Securities Exchange Act creates strict liability for short-swing profits 

corporate insiders can be required to disgorge profits from trades within six-month periods regardless of intent, and an attorney can help you navigate these complex timing rules.

• The burden of proof and complex evidentiary standards require specialized knowledge 

Prosecutors must prove you traded on material, nonpublic information while aware of a fiduciary duty, and an attorney experienced in securities law can challenge the government’s case on technical grounds that a general criminal defense lawyer might miss.

The first clue that you or your company may be under investigation for insider trading is initial contact in the form of a phone call or a visit from an attorney representing the SEC. Initially, this attorney will ask questions about trading activities. Answering these questions is voluntary at this point, and it is highly advisable not to answer any questions without your lawyer present. Any questions you may answer could be misconstrued and used against you in a court of law. The best course of action is to decline to answer any questions and immediately contact an experienced insider trading lawyer to reschedule the interview when you have proper representation working in your best interest.

In recent years, the sentences handed out for insider trading have significantly increased since a new wave of crackdowns has occurred. Penalties for insider trading commonly include jail time and/or hefty fines. But with this sudden surge of harsher sentencing, prosecution attorneys for insider trading have also tried to get those convicted barred from serving as executives of any publicly traded company. Harsher penalties may also extend down to those who passed along insider trading information for the use of another’s personal gains as well. With harsher penalties being doled out for insider trading convictions, you will want to ensure you have a highly qualified insider trading lawyer on your side to fight on your behalf. An insider trading lawyer with extensive experience and knowledge of the law will be able to guide you and evaluate your case to craft the best possible defense. For instance, an insider trading lawyer can and will assess what your trading company does and what motivates them, assess any knowledge of nonpublic trading information known prior to trading, analyze trade motivation decisions such as the use of non-illegal newspaper or articles or stock copies, and request a copy of a Formal Order, if one has been issued by the SEC, to review and prepare before you are questioned.

It’s quite clear that the definition of insider trader is very broad. Therefore, defenses for insider trading will vary on a case-by-case basis. There are a number of potential defenses available that include a lack of knowledge that material was confidential, corporate disclosure prior to use of the material in question, lack of possession of material or its nonpublic knowledge, a mosaic defense that relies on multiple pieces of immaterial information instead of a single piece of material, or reliance on the advice of counsel. Because an insider trading case can be so individualized, it’s best to retain the services of an insider trading lawyer that can help create a defense to receive the most positive outcome possible. Our insider trading lawyers have years of experience and knowledge of the legal system that will allow them to work on your behalf for the best verdict in your case.

The most important step you could take when contacted by the SEC or the Attorney General’s office is to retain the services of an insider trading lawyer to work on your behalf.

Early intervention is critical to ensure the government doesn’t take advantage of your willingness to cooperate. An insider trading lawyer will also help to protect your freedom first and foremost, as well as your assets and your future.

At Lowther Walker, LLC, we know the insider trading laws and have a great deal of experience handling defending complex white-collar cases. We will fight the federal insider trading charges and act on your behalf to counteract any measures taken against you and work toward a positive outcome. Contact our office today to speak with one of our insider trading lawyers.

What specific federal laws criminalize insider trading?

Insider trading is primarily prosecuted under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, which prohibit fraudulent practices in securities trading. Criminal prosecutions also rely on 15 U.S.C. § 78ff for willful violations, and 18 U.S.C. § 1348 (securities fraud). The wire fraud statute (18 U.S.C. § 1343) and mail fraud statute (18 U.S.C. § 1341) are frequently used as alternative charges when communications or mail were used to execute trades.

What are the maximum criminal penalties for insider trading convictions?

Under Section 32(a) of the Securities Exchange Act, individuals face up to 20 years imprisonment and fines up to $5 million per violation. If prosecuted under wire or mail fraud statutes, defendants face up to 20 years per count. The Sarbanes-Oxley Act increased maximum prison sentences from 10 to 20 years for securities fraud violations, reflecting the serious nature of these crimes.

What civil penalties can the SEC impose for insider trading?

The SEC can seek civil penalties under the Insider Trading Sanctions Act (ITSA) and Insider Trading and Securities Fraud Enforcement Act (ITSFEA) of up to three times the profit gained or loss avoided. Additionally, the SEC can seek disgorgement of all ill-gotten gains plus prejudgment interest, injunctions against future violations, and officer-and-director bars preventing individuals from serving in corporate leadership positions.

How does the SEC initially detect potential insider trading?

The SEC uses sophisticated market surveillance systems that flag unusual trading patterns, particularly trades executed shortly before major announcements like mergers, earnings releases, or FDA approvals. The agency also receives tips through its whistleblower program (which can award 10-30% of sanctions exceeding $1 million), monitors Forms 4 and 5 filed by corporate insiders, and receives referrals from FINRA and stock exchanges.

What is the typical sequence of a federal insider trading investigation?

Investigations typically begin with the SEC identifying suspicious trading patterns and issuing informal inquiries to brokerage firms for trading records. The SEC may then issue a formal order of investigation, authorizing subpoenas for phone records, emails, and testimony. If evidence supports violations, the SEC refers criminal cases to the U.S. Attorney’s Office and the FBI. Federal prosecutors may then present evidence to a grand jury, which can issue indictments. Parallel civil and criminal investigations often proceed simultaneously.

What investigative tools do federal authorities use in insider trading cases?

The SEC can issue subpoenas for documents, trading records, emails, and testimony under oath. Federal prosecutors can obtain wiretaps under Title III when investigating securities fraud, search warrants for electronic devices and documents, and grand jury subpoenas. Investigators analyze phone records (including “burner” phones), conduct forensic examination of computers and messaging apps, interview witnesses, and may use cooperating witnesses wearing recording devices.

What is the “misappropriation theory” and how does it differ from classical insider trading?

The classical theory applies when corporate insiders (officers, directors, employees) breach fiduciary duties to shareholders by trading on confidential information. The misappropriation theory, upheld in United States v. O’Hagan (1997), applies when someone breaches a duty of trust and confidence to the source of the information—such as a lawyer trading on a client’s confidential merger plans. Both theories can support criminal prosecution under Rule 10b-5.

What defenses are available in insider trading prosecutions?

Common defenses include:

• Lack of materiality (the information wouldn’t influence a reasonable investor)
• information was already public, the defendant had a pre-existing trading plan under SEC Rule 10b5-1
• No breach of fiduciary duty occurred, lack of scienter (defendant didn’t know the information was material and nonpublic)
• Trading was based on independent research or analysis, and statute of limitations (generally 5 years for criminal charges under 18 U.S.C. § 3282).

What is “tipping” liability and can someone be prosecuted without personally trading?

Under Dirks v. SEC (1983) and refined in Salman v. United States (2016), a “tipper” can be prosecuted even without trading if they disclose material nonpublic information to someone who trades, and the tipper receives a personal benefit (which can include reputational benefit or a gift to a friend or relative). The “tippee” is liable if they knew or should have known the information was disclosed in breach of duty. Both can face the same penalties as if they traded directly.

How does the statute of limitations work for insider trading cases?

For criminal prosecution, the statute of limitations is generally 5 years under 18 U.S.C. § 3282. However, the clock may be extended if the defendant is outside the United States or if the indictment is sealed. For SEC civil enforcement, the limitation period is 5 years under 28 U.S.C. § 2462. The SEC can also seek equitable relief (like injunctions) beyond the 5-year period if there’s ongoing or future harm, though monetary penalties are time-barred after 5 years from the violation.