Illegal insider trading undermines public confidence in the financial markets and allows insiders to profit unfairly. But not everyone understands the term “insider trading,” so not everyone knows how to spot it. The Securities and Exchange Commission (SEC) has implemented a whistleblower program that allows individuals to not only report illegal insider trading, but to be rewarded for their efforts.
If you have information about an individual or company that is engaged in illegal insider trading, you could be eligible to claim a reward. You can also take advantage of anti-retaliation protections for disclosing what you know. Making a strong case is essential to participating in the whistleblower program, and it requires the experience of Newman & Shapiro.
What Is Insider Trading – And When Is It Illegal?
Insider trading is one of the more well-known phrases that the popular culture associates with Wall Street wrongdoing. It is also often misunderstood. The SEC generally uses the term to describe trading of a security on the basis of material, nonpublic information. An insider is someone, typically an executive, director, or employee of a company, who possesses valuable information about a company or security that is not known to the public. An insider can also pass along information to relatives, friends, and associates. Use of that information to profit in the financial markets is known as insider trading.
These are some examples of insider trading:
- The directors, officers, or employees of a company trade the company’s securities after learning significant and non-public information about the company
- Insiders tip off relatives, friends, and associates about damaging non-public corporate information, and those individuals – sometimes called “tippees” – act on it
- Employees of law firms, accounting firms, and other companies learn information about a company through their services and execute trades based on that knowledge
- Government employees trade securities after learning confidential information about a company being investigated
The information acted upon must be both material and non-public. “Material” means the information has to be relevant to the transaction or could have an impact on the value of the security. “Non-public” means information considered confidential or not known to the general public. Illegal insider trading happens when someone either breaches their fiduciary duty, or exploits a relationship of trust and confidence, for personal financial gain.
Contrary to what most people think, not all insider trading is actually illegal. Simply because someone is considered an “insider” does not mean every securities trade they execute is illegal. As long as the person does not base their trade off of material, non-public information, their activity does not violate securities laws or regulations. Typically this requires reporting the trade to the SEC.
What Is The SEC Insider Trading Whistleblower Program?
The SEC regularly reviews trading records for suspicious activity that suggests possible illegal insider trading. But like every federal agency, the SEC can only do so much on its own. It relies on whistleblowers to expose illegality and protect the integrity of our markets.
These whistleblowers are typically insiders themselves, or those in close proximity to them. Because it is difficult to prove that a transaction was illegally executed on the basis of material, non-public information, whistleblowers are especially valuable.
At the same time, not everyone can be a whistleblower. There are some basic requirements to participate in the program, including:
- The whistleblower must possess original information about the insider trading that is not already known to the SEC. This excludes publicly known information about an individual’s or company’s wrongdoing.
- The information must be voluntarily provided by the whistleblower to the SEC. That is, it cannot be obtained from the individual as a result of an investigation, court order, or other requirement.
- The information must lead to successful enforcement action with a total monetary sanction in excess of $1 million. As long as the information is “original,” it can either cause the SEC to open an investigation or contribute substantially to the success of an ongoing one.
What Rewards Are Available For Whistleblowers?
A qualified whistleblower can collect between 10% and 30% of the total monetary sanction. The exact amount of the reward will depend on several factors, such as the significance of the information and how much cooperation and assistance the whistleblower and his or her attorney provided. Having an attorney is critical to not only building a compelling case for the SEC, but also to negotiating the maximum possible reward.
What Are The Anti-Retaliation Protections?
A whistleblower who is represented by counsel may file their claim anonymously. The SEC will protect the whistleblower’s anonymity, but having an experienced attorney will help maintain your confidentiality.
Separate from that, whistleblowers are also afforded strong anti-retaliation protections under the law. An employer may not fire, demote, suspend, threaten, harass, or otherwise discriminate against a whistleblower. An employee who is retaliated against can sue for monetary damages, including double back pay, attorneys’ fees, and court costs, as well as reinstatement to their job.
How Can Newman & Shapiro Help Me?
Not only does Jeffrey Newman have extensive experience with numerous whistleblower laws, including those concerning insider trading and the SEC, he knows how to build a credible case to get the SEC’s attention. Very few whistleblower claims are taken to completion, so it takes exceptional legal representation to push your case into an enforcement action.
Jeffrey Newman also knows how to negotiate fair compensation for whistleblowers. The difference between a 10% reward and a 30% reward can be significant, and you need an attorney who will negotiate the highest reward possible. Finally, you deserve anonymity and protection from employer retaliation. Being a whistleblower takes courage, and we fight to protect the legal rights of our whistleblower clients.
If you believe you have evidence of insider trading, or you simply have questions about the whistleblower program, we encourage you to call. We will protect your confidentiality and explain your options under the law. Reach out to us today to schedule a consultation.