In these cases, insiders in the United States are required to file Form 4 with the U.S. Securities and Exchange Commission (SEC) when buying or selling shares of their own companies.
[7] Rules prohibiting or criminalizing insider trading on material non-public information exist in most jurisdictions around the world (Bhattacharya and Daouk, 2002), but the details and the efforts to enforce them vary considerably.
In general in the countries where the insider trading is forbidden, the competent Authority seeks disgorgement to ensure that securities law violators do not profit from their illegal activity.
There are several approaches in order to quantify the disgorgement; an innovative procedure based on probability theory was defined by Marcello Minenna by directly analyzing the time periods of the involved transactions in the insider trading.
[22] In the United States in addition to civil penalties, the trader may also be subject to criminal prosecution for fraud or where SEC regulations have been broken, the U.S. Department of Justice (DOJ) may be called to conduct an independent parallel investigation.
[25] A study of political insider trading found existing regulation including STOCK Act results in conflict of interest and contributes to social distrust.
[citation needed] Some economists and legal scholars (such as Henry Manne, Milton Friedman, Thomas Sowell, Daniel Fischel, and Frank H. Easterbrook) have argued that laws against insider trading should be repealed.
The practice of insider trading is an illegal act under Brazilian law, since it constitutes unfair behavior that threatens the security and equality of legal conditions in the market.
"[citation needed] The first conviction handed down in Brazil for the practice of the offense of "misuse of privileged information" occurred in 2011, by federal judge Marcelo Costenaro Cavali, of the Sixth Criminal Court of São Paulo.
The then member of the board of directors Romano Ancelmo Fontana Filho was sentenced to prison for one year and five months in an open regime, also replaceable by community service, in addition to not being able to exercise the position of administrator or fiscal councilor of a publicly-held company.
[49] Cornblum committed suicide by jumping from a bridge as he was under investigation and shortly before he was to be arrested but before criminal charges were laid against him, one day before his alleged co-conspirator Grmovsek pled guilty.
However, in 2015, the Chinese fund manager Xu Xiang was arrested for insider trading, and in 2017, he was sentenced to five and a half years in prison and fined 11 billion yuan.
[57] The U.S. SEC alleged that in 2009 Kuwaiti trader Hazem Al-Braikan engaged in insider trading after misleading the public about possible takeover bids for two companies.
[58][59] Three days after Al-Braikan was sued by the SEC, he was found dead of a gunshot wound to the head in his home in Kuwait City on July 26, 2009, in what Kuwaiti police called a suicide.
[61] The longest prison sentence in a Norwegian trial where the main charge was insider trading, was for eight years (two suspended) when Alain Angelil was convicted in a district court on December 9, 2011.
Until the 21st century and the European Union's market abuse laws, the United States was the leading country in prohibiting insider trading made on the basis of material non-public information.
[68] Section 16(b) of the Securities Exchange Act of 1934 prohibits short-swing profits (from any purchases and sales within any six-month period) made by corporate directors, officers, or stockholders owning more than 10% of a firm's shares.
(In 2019, in the case of United States v. Blaszczak, the U.S. Court of Appeals for the Second Circuit ruled that the “personal-benefit” test announced in Dirks does not apply to Title 18 fraud statutes, such as 18 USC 1348.
In United States v. Carpenter[77] (1986) the U.S. Supreme Court cited an earlier ruling while unanimously upholding mail and wire fraud convictions for a defendant who received his information from a journalist rather than from the company itself.
The undisclosed misappropriation of such information in violation of a fiduciary duty ... constitutes fraud akin to embezzlement – the fraudulent appropriation to one's own use of the money or goods entrusted to one's care by another."
[82] The judge also wrote: "In addition to exposing Morgan Stanley to government investigations and direct financial losses, Skowron's behavior damaged the firm's reputation, a valuable corporate asset.
[93] Anil Kumar, a senior partner at management consulting firm McKinsey & Company, pleaded guilty in 2010 to insider trading in a "descent from the pinnacle of the business world".
[102][103] With the guilty plea by Perkins Hixon in 2014 for insider trading from 2010 to 2013 while at Evercore Partners, Bharara said in a press release that 250 defendants whom his office had charged since August 2009 had now been convicted.
[104] On December 10, 2014, a federal appeals court overturned the insider trading convictions of two former hedge fund traders, Todd Newman and Anthony Chiasson, based on the "erroneous" instructions given to jurors by the trial judge.
In 2016, Sean Stewart, a former managing director at Perella Weinberg Partners LP and vice president at JPMorgan Chase, was convicted on allegations he tipped his father on pending health-care deals.
[109] In 2017, Billy Walters, Las Vegas sports bettor, was convicted of making $40 million on private information of Dallas-based dairy processing company Dean Foods, and sentenced to five years in prison.
Walters's source, company director Thomas C. Davis employing a prepaid cell phone and sometimes the code words "Dallas Cowboys" for Dean Foods, helped him from 2008 to 2014 realize profits and avoid losses in the stock, the federal jury found.
Mickelson "made roughly $1 million trading Dean Foods shares; he agreed to forfeit those profits in a related civil case brought by the Securities and Exchange Commission".
[110][111] In 2018, David Blaszczak, the "king of political intelligence",[112] Theodore Huber and Robert Olan, two partners at hedge fund Deerfield Management, and Christopher Worrall, an employee at the Centers for Medicare and Medicaid Services (CMS), were convicted for insider trading by the U.S. Attorney's Office in the Southern District of New York.
[115] In 2023, Terren Peizer was charged with insider trading by the SEC, which alleged that he sold $20 million of Ontrak Inc. stock while he was in possession of material nonpublic negative information.