Insider Trading Allegations

What are insider trading allegations?

Insider trading allegations result from situations in which a person with confidential information about a company uses that information to make a profit by trading the company’s stock. This activity is illegal because it undermines public confidence in the stock market and violates the trust placed in company insiders. In addition, insider trading allegations may arise when an insider engages in conduct that violates their fiduciary duty to the company and its shareholders. This conduct can take many forms, such as trading on material (or non-public) information or helping others to do the same.

For example, suppose an insider learns that another company will acquire their company and buys stock in their company before the acquisition is publicly announced, thereby making a profit when the stock price goes up after the acquisition’s announcement. This instance is a clear example of insider trading, and the company should expect to face allegations of insider trading.

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What measures should a company take to prevent insider trading?

Companies should consider the following:

Establish a clear insider trading policy that defines what constitutes insider trading, outlines the consequences of engaging in insider trading, and explains how employees can report suspected insider trading.
Implement an insider trading compliance committee to oversee the company’s insider trading policies and procedures and investigate suspected instances of insider trading.
Train employees on the company’s insider trading policy and the consequences of engaging in insider trading.
Limit access to material, non-public information only to those employees who need to know it to perform their job duties.
Implement internal controls, such as pre-clearance procedures, blackout periods, and trading windows, to monitor employee trading activity and prevent insider trading.

Which laws, rules, and regulations apply to insider trading in Florida?

Florida’s Uniform Securities Act (FUSA) and the federal Securities Exchange Act of 1934 apply to insider trading allegations. Under FUSA, insider trading occurs when a person trades securities based on material, non-public information. The Florida Division of Securities within the Office of Financial Regulation enforces FUSA.

The Securities Exchange Act prohibits insider trading at the federal level and requires public disclosure of certain transactions by officers, directors, and principal stockholders. In addition, the Securities Exchange Commission (SEC) enforces the country’s national securities laws. The SEC also investigates and prosecutes insider trading under Rule 10b-5.

What are common insider trading allegations that lead to litigation?

The following insider trading issues are prevalent in derivative litigation:

Tippee Liability: When an insider gives confidential information to an outsider, who trades on the information, both the insider and the outsider may be liable for insider trading.
Misappropriation Theory: Insider trading may occur when someone misuses confidential information entrusted to them for personal gain, such as a lawyer or accountant trading on client information.
Insider trading by executives and directors: A classic example of insider trading is when executives or directors of a company trade on material, non-public information.

When a set of facts is appropriate to meet insider trading litigation requirements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path forward to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Have more questions about an insider trading-related situation?

Crucially, this overview of insider trading allegations does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to set up a consultation.