Los Angeles Insider Trading Attorney

Insider trading is a serious federal white-collar crime that can result in significant penalties, including lengthy prison sentences, steep fines, and lasting reputational damage. If you or a loved one is under investigation for insider trading or has already been charged, it is crucial to seek an experienced and skilled white collar attorney immediately. 

As a former Deputy District Attorney with over 14 years of prosecutorial experience, Michael Kraut at the Kraut Law Group Criminal & DUI Lawyers understands how the government builds cases and how to defend against these complex charges. Below is comprehensive information about insider trading laws, common defenses, and why hiring a skilled defense attorney can be the decisive factor in successfully resolving your case.

Insider trading occurs when a person buys, sells, or otherwise trades a security—such as stocks, bonds, or options—based on “material, nonpublic information,” violating a duty to keep that information confidential. The Securities and Exchange Commission (SEC) is primarily responsible for detecting and investigating insider trading violations under the Securities Exchange Act of 1934 and related regulations. Although “insider” suggests corporate insiders such as officers, directors, or employees, insider trading laws cast a wide net. They can also apply to individuals who receive “tips” from insiders or otherwise gain unlawful access to sensitive company information.

What Is Insider Trading and Why Is it Illegal?

The stock market is intended to operate on a level playing field where all investors can access the same information. Illegal insider trading undermines public confidence by giving an unfair advantage to those with privileged data unavailable to the broader market. When this happens, unsuspecting investors can suffer significant financial losses because they lack the information that an insider or tippee has. For these reasons, federal authorities actively pursue and prosecute insider trading cases.

Common Insider Trading Scenarios

• Trading by Corporate Insiders. Corporate officers, directors, and key employees often have in-depth knowledge of a company’s performance before it’s made public. While these individuals are not prohibited from owning or trading in their company’s stock, they must comply with strict disclosure rules. Transactions must be reported promptly to the SEC, and trading windows may be restricted to avoid capitalizing on inside knowledge.
• Tipping and Tippee Liability. Sometimes, insider trading charges arise from “tipping,” where a corporate insider shares confidential material information with a friend, family member, or colleague. The person who provides the tip (the “tipper”) and the person who uses that information to trade (the “tippee”) can both face criminal charges. Prosecutors frequently focus on proving that the tipper derived some personal benefit—monetary, reputational, or even the intangible benefit of gifting valuable information to a friend.
• Misappropriation of Information. Even if an individual is not an employee or officer of the company, they may still be subject to insider trading laws if they possess nonpublic information and exploit it. For instance, a lawyer, accountant, or consultant who gains access to critical company details through their professional engagement must keep that information confidential. Trading on or sharing this information can lead to insider trading charges under the misappropriation theory.
• Unlawful Access Through Theft or Deception. In some cases, employees or hackers may steal private corporate data—such as merger plans, earnings statements, or product launch details—and use it for personal gain in the stock market. This conduct can attract aggressive prosecution because it combines fraud, theft, and violation of securities laws.

Elements the Prosecution Must Prove

To secure a conviction for insider trading, federal prosecutors must typically establish the following:

• Purchase or Sale of a Security. The defendant must have purchased or sold a security (stocks, bonds, options, or other financial instruments).
• Material, Nonpublic Information. At the time of trading, the defendant possessed material and nonpublic information.
• Material: Information is considered material if a reasonable investor views it as significantly altering the total mix of information available, potentially affecting the decision to buy, sell, or hold a security.
• Nonpublic: The information must not be generally available to the public. Even widespread rumors on social media might not qualify as genuinely public if they are still deemed confidential or unverified.
• Breach of Duty or Misappropriation. The defendant must have breached a fiduciary duty, a duty of trust, or confidence. For corporate insiders, this means violating the duties they owe to shareholders. For tippees, it means trading while knowing—or having reason to know—that the information was disclosed in breach of such a duty.
• Intent (Scienter). In criminal cases, the government must show that the defendant acted “willfully,” meaning that they knew or should have known that their actions were illegal. Mistakes or accidental trades based on routine portfolio rebalancing may not meet this standard if the defendant can demonstrate a lack of intent.

Examples of Material Information

Information is often considered material when it could significantly influence a company’s prospects, stock price, or investor perception, such as:

• Unreleased Earnings Statements: Positive or negative earnings that have not been made public.
• Mergers and Acquisitions: Plans or negotiations for a potential merger, acquisition, or takeover.
• Significant Contracts: Forming a major contract with a new partner or losing a lucrative existing contract.
• Product Launch or Discontinuation: News about a new product or a product recall.
• Leadership Changes: The imminent resignation or hiring of key executives or board members.
• Litigation Developments: Pending or ongoing lawsuits that could affect the company’s financial stability.
• Strategic Business Plans: Capital investment strategies, expansions, or significant shifts in corporate direction.

How Long Can You Go to Prison for Insider Trading?

A conviction for insider trading can carry both civil and criminal penalties:

Civil Penalties

• The SEC typically seeks “disgorgement,” requiring defendants to return profits from insider trading.
• The court may impose treble damages (three times the amount gained or losses avoided).
• Defendants can be barred from serving as directors or officers of publicly traded companies, which can harm their professional credibility and future career prospects.

Criminal Penalties

• Under federal law, insider trading can lead to up to 20 years in prison for each count.
• Courts can impose substantial fines, up to millions of dollars, depending on the scope of the violation and the financial gain involved.
• A felony conviction can result in significant personal and professional consequences, including losing professional licenses and future employment opportunities.

Reputational Damage

Beyond the legal penalties, an insider trading conviction can devastate your reputation in the community and industry. Colleagues, potential employers, and licensing boards may be unwilling to associate with someone convicted of securities fraud.

Investigations and Enforcement

The SEC utilizes sophisticated surveillance programs and technological tools to track unusual market movements, such as sharp spikes in trading volume or significant price changes before major announcements. If the SEC suspects insider trading, it can initiate an investigation involving:

• Subpoenaing Financial Records: Bank statements, trading logs, phone records, emails, and other data.
• Depositions and Interviews: Current and former employees, colleagues, or family members may be interviewed under oath.
• Coordination with the Department of Justice (DOJ): While the SEC handles civil enforcement, the DOJ conducts criminal prosecution. If evidence of willful wrongdoing surfaces, a civil investigation can quickly become criminal.

It is critical to seek legal counsel as soon as you learn you are being investigated or if you suspect you might be a target. Early intervention can sometimes limit the scope of an investigation or help negotiate a favorable resolution before formal charges are filed.

Defenses to Insider Trading Allegations

While insider trading charges can be daunting, there are valid defenses and legal strategies to consider:

• Lack of Materiality. If the information in question was not material—meaning it would not have impacted a reasonable investor’s decision—then trading on such information is not illegal.
• Information Was Already Public. If the information was available through public channels or had otherwise been disclosed widely before the trades were made, it cannot be used as the basis for an insider trading claim.
• No Duty of Confidentiality. In misappropriation cases, it must be shown that you breached a duty of trust or confidence. If no such duty existed, the foundation of the prosecution’s case may collapse.
• Prearranged Trading Plan (Rule 10b5-1). The SEC recognizes that insiders often establish prearranged trading plans or contracts (Rule 10b5-1 plans) that dictate future trades regardless of inside information. If your trades were conducted under a plan based in good faith, this defense can protect you from liability.
• No Intent (Lack of Scienter). Insider trading is typically a specific intent crime—prosecutors must prove you knew or should have known your conduct was unlawful. Demonstrating a lack of willfulness or knowledge can be a powerful defense strategy.
• Inadvertent Tipping. Merely overhearing or accidentally revealing information does not always rise to the level of criminal tipping. If the tipper did not intend to convey confidential information for personal benefit, they may not be liable. However, the person who trades on inadvertently obtained inside information may still face prosecution if they know it was material and nonpublic.

Why You Need an Experienced Los Angeles Insider Trading Attorney

Insider trading investigations and prosecutions can be incredibly complex. The trial must parse through volumes of documents, emails, and financial records to demonstrate illegal conduct. You need an attorney who understands:

• Federal Securities Laws: A comprehensive knowledge of SEC regulations, the Securities Exchange Act, Rule 10b5-1, and relevant case law.
• Criminal Procedures: Because insider trading can lead to criminal prosecution, your attorney must skillfully navigate grand jury investigations, plea negotiations, trials, and sentencing hearings.
• Financial Forensics: White-collar cases often involve examining financial records extensively. The ability to interpret and challenge expert financial analysis is crucial.
• Government Tactics: As a former Deputy District Attorney with over 14 years of prosecutorial experience, Michael Kraut has unique insight into how investigators gather evidence and how prosecutors build their cases.

When you enlist the help of the Kraut Law Group Criminal & DUI Lawyers, you gain access to a legal team that is prepared to investigate your case thoroughly, challenge the government’s assertions, and work tirelessly to protect your rights and reputation.

Early Intervention Can Make All the Difference

If you suspect you are under investigation—perhaps you received an SEC subpoena or learned that colleagues have been questioned—do not wait until you are indicted. Engaging an experienced insider trading defense attorney early in the process can:

• Prevent Self-Incrimination: An attorney can guide you in responding to inquiries and ensure you do not inadvertently provide statements that could be used against you.
• Negotiate with Investigators: In some scenarios, cooperating or self-reporting under the guidance of a lawyer might lessen potential penalties.
• Build a Strong Defense: Gathering exculpatory evidence, retaining expert witnesses, and securing a complete picture of your trading history is time-sensitive. The earlier you begin, the stronger your defense strategy can be.

Contact a Los Angeles Insider Trading Attorney Today

Facing insider trading allegations can be stressful, frightening, and life-altering. With the prospect of harsh penalties, including a possible prison sentence of up to 20 years and crippling fines, you need an attorney who combines legal acumen with a tenacious approach. Michael Kraut is a Harvard Law School-educated former prosecutor who devoted his career to defending those accused of serious crimes, including white-collar offenses like insider trading.

Suppose you or a loved one are under investigation for insider trading or have already been charged. In that case, you must immediately consult with a Los Angeles Criminal Defense Lawyer. Attorney Kraut’s unique background—both a former Deputy District Attorney and a respected defense attorney—provides him with the insight and strategies necessary to help you achieve the best possible outcome.

For more information about Los Angeles insider trading defenses and to discuss the specifics of your case, contact Attorney Michael Kraut at the Kraut Law Group Criminal & DUI Lawyers, located at 6255 Sunset Boulevard, Suite 1520, Los Angeles, CA 90028. Mr. Kraut can be reached 24/7 at 888-334-6344 or 323-464-6453.

Remember, insider trading laws are broad and aggressively enforced. Do not face an SEC investigation or federal prosecution alone. Call Michael Kraut today to schedule a confidential consultation and begin mounting your defense. With early intervention and an experienced legal team, you can safeguard your rights, liberty, and future.