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Insider Trading

Insider Trading

Insider trading in securities occurs when a person or persons in possession of material nonpublic information about a company trades in the company’s securities and makes a profit or avoids a loss.  Insider trading is a term used to describe an offense that may fall under a number of federal statutes that regulate the trade of securities.  The authority to bring a civil insider trading case lies with the Securities and Exchange Commission (“SEC”).  Criminal prosecutions are brought by the Department of Justice (“DOJ”) through the United States Attorney’s Office. In many instances, the SEC will announce a civil case at the same time an indictment is released.

The white collar criminal defense attorneys at The Henry Law Firm PLLC stay at the cutting edge of insider trading defense. We maintain a highly skilled group of professionals that understand state and federal securities regulations and regularly defend people charged with criminal and enforcement actions by the DOJ and the SEC. Insider trading cases are typically prosecuted by veteran Assistant United States Attorneys and carry severe jail sentences and significant monetary penalties.  Insider trading prosecutions continue to evolve and the U.S. Attorney’s office for the Southern District of New York continues to make the prosecution of these cases a priority.

Insider Trading Statutes

Insider trading is regulated by multiple federal statutes.  They include the Securities Exchange Act of 1934, the Insider Trading Sanctions Act of 1984, the Insider Trading and Securities Fraud Enforcement Act of 1988, and the Stop Trading on Congressional Knowledge (STOCK) Act of 2012.  These statutes provide for a wide range of insider activity and may be enforced through criminal or civil actions.

Securities Exchange Act of 1934

The 1934 Act, 15 U.S.C. 78a et seq., covers many areas of securities regulation.  Section 16 of the 1934 Act, 15 U.S.C. 78p, specifically provides for sanctions against corporate insiders who take advantage of their inside information to trade the corporation’s securities to make short-swing profits.  An insider under this Act is defined as any “person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security … which is registered … or who is a director or an officer of the issuer….”  There are myriad rules and regulations under the Act requiring registration and reporting.

Section 10(b) of the 1934 Act, 15 U.S.C. §78j(b), and SEC Rule 10b-5, 17 C.F.R.§240.10b-5, cover securities fraud generally, but is frequently applied to insider trading.  Section 10(b) is the 1934 Act’s general antifraud provision and does not refer to specific types of fraud or to specific types of insiders. These definitions are left to the Court’s to interpret leaving significant areas for litigation over specific conduct. The statute says:

It shall be unlawful for any person, directly or indirectly by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange:

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

However, Insider trading liability is not limited to corporate insiders. Prosecutors can also bring claims under “misappropriation” theory, which means “outsiders”—persons that have no duty to the corporation or its shareholders—may be liable for insider trading if they obtain material, non-public information about a company and someone uses that information to trade and breaches a duty to the owner. Liability attaches when an “outsider” misappropriates or steals confidential information, and then uses that information to trade securities. Liability also extends to others who trade on such information through “tipper liability” and “tippee liability.” When a person in possession of material, nonpublic information (the “tipper”) shares the information with someone else (the “tippee”) for the purpose of trading for personal benefit, insider trading liability extends to both parties. The contours of tipper/tippee liability have been heavily litigated.

Recently, the Second Circuit in United States v. Newman, 773 F.3d 438, 442 (2d Cir. 2014), redefined “remote tippee” liability. The fallout from that case created numerous issues in prosecutions for insider trading. However, more recently in United States v. Stewart, the Southern District of New York revamped its’ insider trading strategy. The battle over what constitutes insider trading is ongoing and will continue to evolve.

The penalties for each willful violation of a securities statute by an individual include fines up to $5 million and/or imprisonment up to 20 years; a business may be fined up to $25 million.

Trading Sanctions Act of 1984

The Insider Trading Sanctions Act of 1984 amended the Securities Exchange Act of 1934 by adding or amending multiple statutory provisions. Generally, the 1984 Act allows the Securities and Exchange Commission (“SEC”) to seek civil penalties for insider trading in the United States District Court for up to three times the profit gained or loss avoided. The increased monetary sanction was intended to deter insider trading violations.

Trading and Securities Fraud Enforcement Act of 1988

Much like the 1984 Act, the Insider Trading and Securities Fraud Enforcement Act of 1988 amends the Securities Act of 1934. This Act expands the scope of potential civil penalties to include persons who fail to take adequate steps to prevent insider trading under 15 U.S.C. 78u-1(a)(3). There are limits to the liability of a controlling person found at 15 U.S.C. 78u-1(b). That provision provides:

No controlling person shall be subject to a penalty under subsection (a)(1)(B) of this section unless the Commission establishes that: (A) such controlling person knew or recklessly disregarded the fact that such controlled person was likely to engage in the act or acts constituting the violation and failed to take appropriate steps to prevent such act or acts before they occurred; or (B) such controlling person knowingly or recklessly failed to establish, maintain, or enforce any policy or procedure required under section 78o (f) [1] of this title or section 80b–4a of this title and such failure substantially contributed to or permitted the occurrence of the act or acts constituting the violation.

The Act also provides a private right of action for buyers or sellers of securities against the inside trader if they traded contemporaneously with the insider.

Trading on Congressional Knowledge (STOCK) Act of 2012

The Stop Trading on Congressional Knowledge Act of 2012, as its name suggests, applies insider trading prohibitions to Members of Congress, congressional staff, and other federal officials. Section 3 of the Act provides:

[A] Member of Congress and an employee of Congress may not use nonpublic information derived from such person’s position as a Member of Congress or employee of Congress or gained from the performance of such person’s official responsibilities as a means for making a private profit.

In Addition to Congress, the Act prohibits insider trading by members of the executive and judicial branches of government. The Act says:

Executive branch employees, judicial officers, and judicial employees are not exempt from the insider trading prohibitions arising under the securities laws, including section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder

How Can We Help

Insider trading cases are extremely complex. The United States Attorney’s Office for the Souther District of New York and around the country have focused their efforts on prosecuting insider trading cases.  As a result, the number of prosecutions continue to rise.   If you have been contacted about or charged with an insider trading violation, call immediately at 646-820-0224. Early intervention is extremely important. Let the innovative federal criminal defense attorneys at The Henry Law Firm PLLC provide you with the defense you deserve.

Can I Plead the Fifth in a Company Internal Investigation?

You probably already understand that only a state, local, or federal prosecutor can bring criminal charges against you, and that your employer’s attorneys or outside law firm may have the power to discipline you in the form of suspension or termination, but they cannot put you in jail. But what your employer’s lawyers can do is to report information about you – including statements you have made and your work emails and other records – to the government, which can then use that information in any way it pleases, including in preparing civil actions and/or criminal charges against you. Which raises the question of whether it is appropriate for an employee, manager, director, officer, or other individual to raise the protections of the Fifth Amendment in an internal investigation conducted by a business entity.

Why Companies Report Misconduct to the Government

It may seem counterintuitive that your employer would self-report incriminating information relating to its employees’ work on their behalf – as companies are often but not always liable for the acts of employees within the scope of employment – but such is the nature of white collar civil and criminal investigations in recent decades.

More and more, state and federal investigators incentivize companies to self-report wrongdoing by employees. Common ways in which this occurs is that prosecutors and companies will reach a deferred prosecution agreement (DPA) or non-prosecution agreement (NPA), by which the company will avoid prosecution itself by agreeing to undertake other actions, such as paying fines, instituting new procedures, and/or taking actions against individuals in the company perceived to be problematic. This is generally only done when the company makes efforts to self-report, e.g. handing over the findings of an internal investigation.

This of course can be a relatively good outcome for the company, but not for the individuals who are on the receiving end of the company’s internal actions. Furthermore, the government may bring civil and/or criminal proceedings against the individuals based on information provided by the company.

You Are Not Obligated to Incriminate Yourself

The Fifth Amendment protection against self-incrimination applies only to the government and its agents, meaning that it would only make sense for an individual to invoke his or her Fifth Amendment rights when being questioned by an agent of a state, local, or federal government.

That said, you are never obligated to respond to questions from private parties, including your supervisor, HR department, in-house counsel, or an outside law firm conducting an internal investigation. Of course, your employer is, in many cases, not obligated to continue employing if you refuse to participate in an internal investigation related to your conduct at work.

Thus, rather than invoking your Fifth Amendment right in an internal investigation where you have reason to believe negative consequences might flow from what you say, a more appropriate action is to work with an experienced white collar defense attorney who can assess your situation and help you strategize what your best options are in light of your circumstances. Those options might range from simply providing your employer with all information requested to being represented by an attorney during all questioning, and so on, but only a white collar attorney that represents you can provide you with that guidance.

Contact a New York Defense Attorney Today

The Henry Law Firm PLLC provides criminal defense to individuals and businesses throughout New York in all state and federal investigations and prosecutions. If you believe you may be under investigation for any state or federal crime, do not hesitate to contact us today to schedule a confidential consultation regarding your matter.

What Does it Mean to Have “Constructive Possession” of a Firearm in New York?

Although we often hear about a lack of gun control in the U.S., federal agents arrest around 7,000 individuals for firearms violations every year, and many more arrests are made at the state level. While the Second Amendment and current federal regulations do allow for legal ownership of a wide variety of firearms, you can face stiff criminal penalties if arrested for possession of an illegal weapon. Furthermore, felony convicts and others who have had their gun ownership rights revoked also face arrest, which are among the most common type of federal firearms. States and localities such as New York do go further than federal law in regulating firearms, requiring permits for pistol ownership and outlawing assault rifles. But what does it mean to have possession of a firearm in New York? Under the concept of “constructive possession,” defendants in firearms crime cases face legal challenges in asserting their criminal defense in New York.

Possession and Constructive Possession Defined

First off, it should be understood that possession is not the same as ownership. If you are holding a firearm, you are possessing it, regardless of whether someone loaned it to you even for a brief moment, you are transferring it to someone else, or you simply found it.

Constructive possession takes the concept of possession a step further. It says that a person can be considered to have possessed a firearm – and thus run afoul of any relevant firearm laws – even if the firearm was not literally in their possession. Specifically, New York courts have held that: a defendant has property in his or her constructive possession when that defendant:

  • exercises a level of control over the area in which the property is found, OR
  • exercises control over the person from whom the property is seized, AND
  • this control was sufficient to give the defendant the ability to use or dispose of the property

New York legal authorities have also said that two people can both have constructive possession over contraband when: “they each exercise dominion or control over the property by a sufficient level of control over the area in which the property is found.”

Defending Against Constructive Possession Charges

Taking the above definition, this means that prosecutors can bring charges for illegal possession of a firearm when the defendant is not literally possessing the firearm on his body or in his personal belongings, but where a gun is simply found on a person over whom he has control (e.g. a spouse, a child, a subordinate, etc.) or in property he possesses, such as a shared home, vehicle, or business.

That said, it is important to remember that prosecutors must prove every element of a firearms charge beyond a reasonable doubt, and an experienced criminal defense attorney can cast doubt and present contrary arguments against the prosecutor’s allegations.

Such defenses can take any number of specific forms, but might include questioning whether a defendant did in fact have control over the person or the property on which the firearm was found or whether the defendant was even aware of the presence of the firearm. Talk to an experienced criminal defense attorney about the best defense in your particular circumstance.

Contact a New York Defense Attorney Today

The Henry Law Firm PLLC provides criminal defense to individuals and businesses throughout New York in all state and federal investigations and prosecutions. If you believe you may be under investigation for any state or federal crime, do not hesitate to contact us today to schedule a confidential consultation regarding your matter.

Are There Legal Defenses to Extortion/Blackmail?

Extortion and blackmail crimes both involve threats made against another person to do violence to that person or their property – which can include publicizing facts about that person to damage his or her reputation – for the purpose of extracting money or other property from the person. Under both state and federal law, an extortion conviction is a felony that can mean many years in prison, fines, as well as a ruined personal and professional reputation. But sometimes people are investigated and/or charged with extortion based on exaggerations or statements taken out of context. If you are under investigation for extortion, it is important to obtain experienced legal counsel to present your best defenses to the potential charges.

Lack of Evidence to Support an Extortion Charge

Extortion statutes may vary across states and at the federal level, but in general they require that the defendant have knowingly made a threat to damage the person, property, or reputation of a victim with the purpose of obtaining money or other property from the victim.

When a disagreement between parties gets out of control, an extortion or blackmail allegation may arise based on what has actually just heated negotiations and discussions which should not be taken literally or which were not based on an actual intent to threaten another person. Your defense attorney can assess all of the available evidence for relevance and strength and cast doubt on the prosecutor’s allegations in this regard, as the prosecutor is required to prove your intent beyond a reasonable doubt.

Lack of Admissible Evidence

Even where evidence may support elements of an extortion or blackmail charge, that evidence can only be used against you where it is admissible based on being legally obtained by police and other government agents.

If evidence was obtained through illegal means – including custodial interrogations that did not include Miranda warnings, detainments not supported by reasonable suspicion, questionings that did not honor your right to counsel, searches not conducted via a warrant or a warrant exception – your attorney can successfully argue that such evidence should not presented to a jury and that charges should be dismissed.

Attempted Extortion or Conspiracy to Commit Extortion

When no money or property was actually obtained in response to an alleged extortion threat, prosecutors may still try to bring charges based on an attempt to extort or even a conspiracy (agreement) to commit conspiracy. In such cases, your attorney can argue that you did not have the requisite intent for either an attempt or conspiracy and/or that no significant steps were actually taken in furtherance of committing extortion.

Other Defenses to Extortion

Other defenses that your attorney may raise to an extortion charge could include:

  • You performed illegal acts under duress
  • You were voluntarily or involuntarily intoxicated at the time, negating the mental intent
  • You otherwise lacked the mental capacity to commit extortion

Speak to an experienced defense attorney at the first sign of an extortion investigation to begin mounting your best defense to all potential charges.

Contact a New York Extortion Defense Attorney Today

The Henry Law Firm PLLC provides criminal defense to individuals and businesses throughout New York in all state and federal investigations and prosecutions. If you believe you may be under investigation for any state or federal crime, do not hesitate to contact us today to schedule a confidential consultation regarding your matter.  

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The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. Prior results do not guarantee future outcomes.