Insider Trading: Civil Or Criminal Crime?

October 24, 2013

Jordan A. Thomas provides insight on key triggers for criminal insider trading charges

Thomas told me that in his experience the triggers for criminal insider trading charges were based on three primary factors:

1) Significance of wrongdoing (amount of money involved, the number of people affected by the trade and the duration of the activity); 2) Corroboration of others to prove a criminal case and provide evidence of wrongdoing (need someone to flip or have someone on tape); 3) Recidivists of any securities violations (always looking to clean up Wall Street)

Thomas said, "You can assume that there is regular communication between the SEC and the DOJ on cases.  If the SEC believes there is enough information that could lead to a criminal conviction, the DOJ may undertake its own, independent, investigation to see if it leads to the same conclusion."

As to whether prosecutors these days are more willing to go after criminal versus civil, Thomas said,  "There is a quiet revolution in white collar criminal securities cases led by cooperators and whistleblowers.  New enforcement tactics like wire taps, previously used in organized crime, has yielded powerful evidence of criminal intent."

According to Thomas, both the SEC and FINRA now can analyze massive volumes of trades and detect red flags that start their investigations.  With regard to Compliance departments within firms taking cases to authorities, Thomas said that his experience has been that while illegal actions are detected internally, those are rarely sent on to state or federal law enforcement.  "Compliance departments who have discovered wrongdoing within the company, rarely report it to authorities.  They typically give offenders their walking papers and allow them to go find a new job," Thomas said, "which isn't much of a consequence for someone who has seemingly been successful at making money on Wall Street."