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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 Go to Jail For Using Bitcoin?

Bitcoin and similar “crytpocurrencies” have been around for years, but Bitcoin is getting a lot more attention than usual in 2017, primarily based on the fact that such currencies have risen in value six times over since the start of the year, and $6.6 billion in digital currencies are now traded daily. This growth in digital currencies is having some effect on mitigating the cloud of controversy that has hung over Bitcoin and similar currencies, which is partly due to the mysterious origins of Bitcoin (for years its inventor remained anonymous) and the frequent use of Bitcoin in criminal transactions. But, as digital currency grows in popularity, more individuals and businesses are justifiably interested in learning more while understandably cautious about the legality.

Digital Currency Usage Is Not Inherently Illegal

Individuals and businesses are permitted to use Bitcoin and other similar currencies, although some states such as New York do impose licensing requirements on certain parties. Under New York State’s recently promulgated BitLicense rules, parties engaged in the following activities are required to obtain a BitLicense from the state if they are conducting business in New York or with people who reside in New York:

  • Virtual currency transmission
  • Storing, holding, or maintaining custody or control of virtual currency on behalf of others
  • Buying and selling virtual currency as a customer business
  • Performing exchange services as a customer business
  • Controlling, administering, or issuing a virtual currency

Customers and merchants who merely conduct transactions involving digital currency are not required to obtain a license in New York.

Criminal Liability With Bitcoin

The most common situations in the news involving criminal liability for use of Bitcoin and similar currencies is when the currency is used for illegal purposes. Several high-profile individuals have been convicted of crimes in connection with an online marketplace called Silk Road where illegal transactions involving criminal acts for hire, illegal pornography, and drug trafficking were facilitated by use of Bitcoin.

In one case, an entrepreneur who ran a service facilitating Bitcoin transactions pled guilty and served time in federal prison for facilitating the purchase of illegal drugs on Silk Road using Bitcoin. In another case, the founder of Silk Road was sentenced to life in prison for his role in facilitating illegal transactions using Bitcoin, and his trial included evidence of five potential murder-for-hires that he sought out “to protect his burgeoning creation from informants.”

Bitcoin and similar currencies have also been factors in criminal investigations and prosecutions involving fraudulent securities dealings as well as money laundering. Ultimately, many of the same finance-related crimes that can be committed with traditional currency can also be committed with digital currency, although, perhaps ironically given the attraction many of had to the supposed privacy of digital currency, crimes involving digital currency have become easier for law enforcement to investigate in some cases.

When faced with any questions over potential criminal liability for a proposed transaction or one that has already occurred, parties are highly encouraged to speak with an experienced criminal defense attorney regarding their situation.

Contact a New York White Collar 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, and aggressively pursues appeals on their behalf. To take immediate action to defend your rights in a white collar investigation or prosecution, do not hesitate to contact us today to schedule a confidential consultation regarding your matter.

When Do I Have a Right to an Attorney?

As residents of the United States – whether citizens or not – we enjoy the greatest legacy of constitutional rights against government overreach into our personal lives that the world has known, and this legacy is most famously embedded in our constitution’s approach to the rights of people against police and prosecutors. But, in many cases, unless a person is actually aware of what those rights are and how to utilize them, those rights can be wasted. This is especially true with regard to our constitutional right to an attorney. Below we briefly discuss what that means and how you can assert those rights.

Don’t Speak: The Fifth Amendment Right to an Attorney

We often speak of the “right to an attorney” as if it were a single right provided by the constitution, but really there are two distinct but related sources of this right in the constitution. The first is the Fifth Amendment, which states that a person has the right against self-incrimination. What that means is that you cannot be forced to give the government damaging information about yourself that could lead to a conviction.

The federal courts have more fully illustrated what that means by also ruling that a person does not need to provide any information to a government agent questioning him. In addition, the courts have ruled that, when a person tells the police that he wants to speak to an attorney before speaking to police, the police must stop all questioning.

Note that this right does not depend on the police arresting you or “reading you your rights,” and instead a person can invoke this right anytime the police are questioning him. If the police keep questioning, then they are in violation of the law and any statements provided will be inadmissible at trial.

“The Assistance of Counsel”: The Sixth Amendment Right to an Attorney

In addition to the right to a lawyer that attaches to every person’s right against self-incrimination, the Sixth Amendment of the Constitution also guarantees every person “the Assistance of Counsel for his defense” at trial. As with the Fifth Amendment, the federal courts have ruled that this constitutional guarantee means that a defendant not only has a right to an attorney at a criminal trial but also has a right to an attorney during pre-trial proceedings, starting from the time that formal proceedings are brought against the defendant, such as through an indictment.

What this means is that any statement obtained from a defendant by government agents without his attorney present is inadmissible. But, putting this together with the Fifth Amendment rights, what every person should understand is that they always have a right to an attorney when approached by government agents – regardless of whether they have been read their rights, arrested, or formally charged – and speaking to police or other agents without an attorney can result in self-incrimination.

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.  

In What Circumstances Can a Drug Conviction Be Appealed?

Whether you have been convicted in state or federal court for a drug crime, you already know that serious consequences to your liberty and future can follow, including a long prison sentence, steep fines, and lasting damage to your personal and professional reputation. Which makes appealing your drug conviction a hugely important step to consider. Not all convictions involve circumstances providing grounds for appeal, but below are a few common grounds for appealing a drug crime conviction. Consult with an experienced drug crime appeals attorney to learn more about grounds for appeal in your situation, and do not delay as appeals are often extremely time-sensitive.

Improper Police Action in Detaining or Arresting You

The police must have reasonable suspicion that you have violated the law to stop and detain you, whether on the street or in your car. If they did not, and evidence leading to your conviction was collected as a result, you may have grounds to appeal. In addition, police must have probable cause that you committed a crime before arresting you, and failure to do so can be grounds for appeal.

Failure to Provide You With an Attorney

If the police obtained statements from you leading to your conviction while in custodial interrogation (e.g. where you were detained) prior to reading you your Miranda rights, such statements may be thrown out on appeal. In addition, if you asked for a lawyer but did not receive one, or if the police questioned you without a lawyer after you were indicted, you may have grounds to appeal.

Improper Admission or Denial of Evidence

Convictions in drug crimes are often based on the nature of the evidence admitted against you, either in witness statements or physical or documentary evidence. If a judge improperly allowed the admission of evidence against you in violation of procedural rules or your constitutional rights (such as where the police violate your Fourth Amendment rights with an illegal search), this can be grounds for appeal. Likewise, an improper  failure to allow the admission of evidence that would have helped exculpate you may also be grounds for appeal.

Issues with Your Criminal Jury

A number of grounds for appeal can arise with regard to the jury that handed down your conviction. If prosecutors used improper jury selection techniques – such as selecting jurors based on race – this can be grounds for appeal. Also, if jurors engaged in misconduct by failing to follow the judge’s orders, this can also be grounds for appeal.

A Lack of Sufficient Evidence Against You

While a jury makes the determination of guilt against you, the question of your guilt should not even go to the jury if the prosecutors had not presented evidence such that it would be reasonable for a jury to find that you were guilty beyond a reasonable doubt. An appeals attorney can examine your trial record to determine whether this is the case.

Improper Judge Instructions

If the judge improperly instructed the jurors with regard to how they should analyze the facts presented at your trial in the light of the legal structures, this can be grounds for appeal.

Failure of Your Counsel at Trial

Unfortunately, many attorneys are incompetent or at least fail to provide adequate counsel at trial. If this was the case, you may have grounds for appeal.

Improper Sentence

When a judge hands down a sentence after a conviction that is not supported by the facts or the law, you can appeal the sentence.

Contact a New York Federal Drug Crime Appeals 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 and aggressively pursues appeals on their behalf. To take immediate action to appeal your drug crime conviction, 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.