The criminal defense attorneys at Heiferman & Associates have been helping defendants in Queens who are accused of insider trading clear their name and defend their rights, for over 20 years.
Justin Heiferman cut his teeth prosecuting white collar criminal cases with the Nassau County District Attorney Economic Crimes Bureau. After several years, he realized he would rather be on the other side of the v., so he started Heiferman & Associates. He and the rest of our team now put their extensive knowledge of how the criminal system works to defend residents of Flushing and the surrounding areas against white collar crimes.
What Is Insider Trading?
What do the former CEO of Enron, Martha Stewart, and pro-golfer Phil Mickelson have in common? They have all been accused of insider trading. They allegedly used their special knowledge or connections to gain an unfair advantage in the stock market.
Jeffrey Skilling, who oversaw Enron’s epic growth and collapse, was convicted of 19 counts of conspiracy, securities fraud, insider trading and lying to auditors. When he realized the house of cards that was Enron’s energy trading business was about to fall, he sold almost $60 million in Enron shares, then abruptly resigned from the company. Months later, the company filed for what was then the largest bankruptcy in U.S. history.
Stewart was convicted of conspiracy and obstruction of justice after being accused of insider trading. She sold shares of a drug company just days before the FDA released a negative report about the company, but it was never proven that she had insider knowledge of the FDA’s report. Instead, she was acting on a tip from her broker, who knew the drug company’s CEO was dumping a bunch of his own stock.
Mickelson was implicated in a three-way insider-trading scandal that ended with his sports gambling bookie, and one of that guy’s friends who happened to serve on the board of a food processing company in prison. Mickelson walked away unscathed, without even taking the stand to testify. It was never proven that Mickelson did anything more than take his bookie’s advice that he buy and sell certain stocks.
These three cases are all well-known examples of alleged insider trading, but even they are not cut and dry. When does buying and selling stock in your own company become a crime? When is taking advice from your broker a bad idea? Is taking a stock tip from a friend illegal if you happen to make money on it?
The problem with federal and New York insider trading laws is the answer to all of these questions is “it depends.” There are many grey areas in this area of the law, which make prosecutors overzealous, but presents opportunities for those who have been accused of insider trading to put up a strong defense.
Insider Trading Is What The Government Says It Is
According to the United States Securities and Exchange Commission (SEC), preventing insider trading from eroding investor confidence in the fairness and integrity of the securities markets is one of its top priorities.
However, Congress has never actually defined insider trading. Instead, the SEC works to prevent activities it has decided are illegal insider trading. The agency defines the practice as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security. Insider trading violations may also include ‘tipping’ such information, securities trading by the person ‘tipped,’ and securities trading by those who misappropriate such information.”
This is not a precise definition. It gives the government a lot of wiggle room to define terms like “relationship of trust and confidence,” “material information,” and “nonpublic information” in a way that opens a lot of people up to prosecution.
There is no one law prohibiting insider trading and offering a concrete definition of it at the federal level, or in New York. What we have instead is this vague definition from the SEC and tons of court cases that have interpreted the SEC’s shifting definitions and prosecutions over the years. This is frustrating because it can make it difficult to know if you are breaking the law, but the silver lining is that this vagueness gives defendants the same wiggle room the government has to argue that allegedly illegal activity was perfectly fine.
Hot Tip? Or Illegal Advice?
In the movie The Graduate, Benjamin Braddock, the title character played by Dustin Hoffman, is at a cocktail party his parents have thrown to celebrate his graduation from college. A friend of Ben’s parents named Mr. McGuire walks up, and tells Ben he has one word of advice for him, just one word — “plastics.”
Is this insider trading? It is hard to say since the definition of insider trading is imprecise, and enforcement tends to vary.
Most insider-trading prosecutions begin with two people, known as a tipper and a tippee. The first is the insider with a duty to keep corporate information secret, and the latter is someone who sells stock based on the tip from the insider. Using the example from The Graduate, we can think about what sort of evidence the government would try to find to prove that McGuire was acting as a tipper, and Ben a tippee.
The first thing that might trigger an investigation is Ben’s actions following the conversation. If Ben invests all his graduation money in plastics, or if “plastics” is a code for something else, the government could become suspicious.
Next, the government will look into McGuire’s knowledge of plastics. If he is sharing specialized, insider knowledge with Ben, he could be in trouble even if he is just giving some friendly advice to a new college grad.
- What if McGuire works for a plastics company? Or sits on a plastic company’s board?
- What if McGuire’s spouse works for a plastics company?
- Does McGuire work for a government agency that regulates the plastics industry?
- Is McGuire the attorney for a plastics company?
The government can easily turn a friendly conversation at a cocktail party into a criminal enterprise. As criminal defense attorneys, it is our job to cast doubt on the government’s assertions, whether we are representing the alleged tipper or tippee.
What To Do If You Have Been Accused Of Insider Trading
The punishments for insider trading vary greatly depending on the situation, but if convicted, you may be fined, fired, banned from doing business, or imprisoned. Working with an experienced white collar criminal defense attorney to clear your name, and prevent your whole life from being ruined, is critical.
The attorneys at Heiferman & Associates have represented many New Yorkers who have been accused of insider trading fight the charges. We know what sort of evidence to gather to shed doubt on the prosecution’s case, and we can identify weak spots to attack. Our goal is to get serious charges reduced, or dropped altogether, so that our clients can get on with their lives.
If you have been accused of insider trading, contact our office today to schedule an initial consultation.