How many cases of insider trading are there?
In 2022 the SEC brought 462 stand alone enforcement cases compared to 434 in 2021, and 43 insider trading cases compared to 28 in 2021.
Proof of responsibility
Proving that someone has been responsible for a trade can be difficult because traders may try to hide behind nominees, offshore companies, and other proxies. The Securities and Exchange Commission (SEC) prosecutes over 50 cases each year, with many being settled administratively out of court.
The US Securities and Exchange Commission prosecutes approximately 50 insider trading cases per year, and there are harsh penalties of up to 20 years in prison.
Damian Williams, the United States Attorney for the Southern District of New York, announced today that a jury returned a guilty verdict against AMIT DAGAR for insider trading and conspiracy to commit insider trading.
Legal insider trading is common since insiders can buy and sell shares of their own company as long as they follow specific timing guidelines and accurately report the trades to the Securities Exchange Commission (SEC).
Detection methods have evolved over the years to include increasingly sophisticated technology. The SEC now utilizes advanced data analytics and machine learning algorithms that can sift through enormous volumes of trading data to identify patterns indicative of insider trading.
As to the criminal penalties for insider trading, the maximum sentence for an insider trading violation is 20 years in federal prison. The maximum criminal fine for individuals is $5 million, and the maximum fine for a company is $25 million.
CONVICTION AND JAIL TIME
Perhaps one of the more damaging testimonies which sealed Martha Stewart's fate was the testimony of her then friend Mariana Pasternak. On the witness stand, Pasternak revealed that she believed Stewart had made a statement indicating her involvement with insider trading.
Cases of insider trading often capture the attention of the media, particularly if the accused party is a public figure. Four cases that captured a significant amount of media coverage in the U.S. are the cases of Albert H. Wiggin, Ivan Boesky, R. Foster Winans, and Martha Stewart.
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.
How are insider traders caught?
The government tries to prevent and detect insider trading by monitoring the trading activity in the market. The SEC monitors trading activity, especially around important events such as earnings announcements, acquisitions, and other events material to a company's value that may move their stock prices significantly.
Penalties for insider trading can be severe.
According to the SEC, a conviction for insider trading can result in: Fines of up to $5 million. Imprisonment of up to 20 years. Being banned from serving as an officer or director of a public company.
The main argument against insider trading is that it is unfair and discourages ordinary people from participating in markets, making it more difficult for companies to raise capital. Insider trading based on material nonpublic information is illegal.
It adds that leaked IRS data covering two decades, exposes at least three instances where Buffett traded stocks in his personal account just before or during the same quarter as Berkshire's transactions, potentially violating the company's ethics policies, authored by Buffett himself.
Understanding White-Collar Crime
High-profile individuals convicted of white-collar crimes include Ivan Boesky, Bernard Ebbers, Michael Milken, and Bernie Madoff. Their crimes have included insider trading, accounting scandals, securities fraud, and Ponzi schemes.
A lawyer who represents the CEO of a company learns in confidence that the company will experience a substantial revenue decline. The lawyer reacts by selling off his stock the next day, because he knows the stock price will go down when the company releases its quarterly earnings.
Over the years, the SEC has brought insider-trading cases against hundreds of parties, including: Corporate insiders who traded the company's securities after learning of significant, confidential developments.
Cuban handed over every trading document, filing and email he had related to Mamma.com to facilitate the SEC with its investigation. Hart said he and Cuban were surprised when SEC officials contacted Cuban a couple of years later to say they were investigating him for insider trading related to his Mamma.com shares.
Ivan Boesky was convicted of insider trading and was subsequently sentenced to three years in prison and ordered to pay $100 million in fines.
Stewart was ordered to pay a $30,000 fine, while Bacanovic was fined $4,000.
What company has the most insider buying?
- VF Corp (VFC) insider purchases percentage of market cap 0.033%
- Carnival Corp (CCL) 0.029%
- Enphase Energy (ENPH) 0.027%
- DENTSPLY SIRONA (XRAY) 0.013%
- Allegion (ALLE) 0.012%
- Air Products and Chemicals (APD) 0.010%
- Northern Trust (NTRS) 0.010%
Insider trading is when non-published information from a company is used to make a trading decision by someone with an invested interest in that company. It is illegal to engage in insider trading, but it is legal to trade your company shares as long as you follow the guidelines set by the SEC.
The Dirks test stems from the 1983 Supreme Court case, Dirks v. SEC, which established a blueprint for evaluating insider trading. The Supreme Court ruled that a tipee assumes an insider's fiduciary duty to not trade on material nonpublic information if they knew or should have known of the insider's breach.
“It is incredibly difficult to prove an insider trading case,” said Daniel Taylor, a forensic accounting professor at the University of Pennsylvania.
Dirks Test is a standard used by the SEC to determine if someone who receives and acts on insider information is guilty of illegal insider trading. Tipping is the act of providing material non-public information about a publicly traded company to a person who is not authorized to have the information.
