Statutes-Limitations - Insider Trading Statute of Limitations (2024)

FAQs

What is statute of limitations on insider trading? ›

The Statute of limitations for an insider trading charge is five years. The matter must, therefore, be presented before the court with adequate evidence not later than five years after the individual uses the insider information to make profits from a trade.

The purpose of statutes of limitations is to protect would-be defendants from unfair legal action, primarily arising from the fact that after a significant passage of time, relevant evidence may be lost, obscured, or not retrievable, and the memories of witnesses may not be as sharp.

The Securities and Exchange Commission plays a pivotal role in detecting and prosecuting insider trading. The agency monitors trading activities and investigates unusual spikes in trading volume or price changes that precede significant corporate events, such as mergers or earnings reports.

The issue is there's not a specific law defining what insider trading is, which makes it difficult to prosecute cases as they arise. Additionally, a major component of prosecuting a case is proving intent, which requires a lot of evidence to support the claim.

In the United States, Sections 16(b) and 10(b) of the Securities Exchange Act of 1934 directly and indirectly address insider trading. The U.S. Congress enacted this law after the stock market crash of 1929.

SEC Rule 10b-5 prohibits corporate officers and directors or other insider employees from using confidential corporate information to reap a profit (or avoid a loss) by trading in the Company's stock. This rule also prohibits “tipping” of confidential corporate information to third parties.

Each state has laws that prevent someone from being prosecuted for a crime after a certain period of time, these are known as statutes of limitations. Some states provide exceptions to their time limits—for example, if DNA evidence is discovered, the state is allowed more time to prosecute.

Tolling of the statute of limitations

Sometimes the statute of limitations is suspended (“tolled”) for a period of time, and then begins to run again. For example, tolling may happen when the defendant is a minor, is out of the state or in prison, or is insane.

The principle exception to the statute of limitations is the discovery rule. Under this exception, the statute of limitations may be suspended for the period during which an injured person cannot reasonably be expected to discover the injury upon which a malpractice claim may be based.

On June 17, 2004, a judge sentenced Martha Stewart to five months in prison and two years of supervised release, along with fining her $30,000. Stewart went to prison proclaiming her innocence, which she still maintains to this day.

How often is insider trading caught? ›

For example, the US Securities and Exchange Commission (SEC) prosecutes approximately 50 insider trading cases per year (SEC, 2015).

Insider trading is deemed illegal when the material information is still non-public and comes with harsh consequences, including potential fines and jail time.

The Securities and Exchange Commission (the "SEC") has brought insider trading cases against corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments; friends, business associates, family members, and other "tippees" of such ...

First, to be considered an insider, you have to be in possession of information that isn't public; Perhaps that's advance notice of a company's earnings, or results of a drug trial. If you take this information and trade on it or give it to others and they trade on it, you can expect prosecutors to take an interest.

Under Section 32(a) of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley Act of 2002, individuals face 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.

If you're found guilty of insider trading, you could get up to 20 years in federal prison. This is why it's so important to hire a lawyer, so you can improve your chance at winning the case or keeping your insider trading jail time to a minimum.

People who have direct access to inside information, such as a person who receives a “tip” from an officer or director, are also considered “insiders” and may be subject to prosecution for insider trading.

The authors explain that in federal courts, trade secrets claims typically have a three-year statute of limitations period, meaning a claim is barred if not brought within three years of when the misappropriation is discovered or should have been discovered by the exercise of reasonable diligence.