Individuals in New York and throughout the country could face jail time and other penalties for engaging in insider trading. However, there is no law that specifically says what insider trading is. A panel led by a former federal prosecutor says that the government needs to clarify what exactly constitutes insider trading. He claims that doing so could benefit traders, judges and those tasked with regulating financial markets.
The panel proposed legislation that would make it illegal for anyone to benefit from information that they wrongfully obtained from another party. It would also eliminate the need for prosecutors to show that an individual derived any sort of personal benefit from the information that he or she received. The House recently passed a bill called The Insider Trading Prohibition Act aimed at reforming insider trading rules. However, the personal benefit element was included in the proposed legislation.
That bill is awaiting a vote in the Senate. Currently, prosecutors are required to rely on prior court rulings and older anti-fraud laws when trying insider trading cases. For instance, a judge recently ruled that prosecutors must establish that actions were taken for personal benefit if a case was being tried under the 1934 Securities Exchange Act. However, this is not necessary if a case is being tried under the 2002 Sarbanes-Oxley Act.
Individuals who are under investigation for crimes such as insider trading may face significant penalties if they are convicted. An attorney may be able to show that an individual derived no personal benefit by obtaining or distributing information. Legal counsel might also show that a client did not intend to commit fraud or that he or she was compelled to by another person. If successful, a defendant may receive a favorable plea deal or acquittal.