The Securities and Exchange Commission (SEC) recently obtained a criminal conviction against a former Pharmaceutical CFO for insider trading. This was not a generic trading on a novel piece of Material Non-Public Information (MNPI) acquired through the grapevine. From the indicting Information, which was consented to by the Defendant, it was a series of intentional, deceptive and misleading actions, by a corporate officer, acting in a trusted fiduciary capacity, to profit from insider trading. Perhaps that’s the reason the SEC took extra measures to make sure he did not ultimately profit from his scheme.
The Code says that the property or proceeds that an inside trader receives from his illegal transaction can be forfeited to the United States government. The procedural guidelines in the code say that “, the Government may include notice of the forfeiture in the indictment or information pursuant to the Federal Rules of Criminal Procedure. If the defendant is convicted of the offense giving rise to the forfeiture, the court shall order the forfeiture of the property as part of the sentence in the criminal case . . . .”
Those who think that hiding or disposing of the illegally obtained proceeds will leave the SEC without a viable remedy, may be in for a big surprise to find out the SEC has very strong resources available to them. Title 21 of the Code says, “the court shall order the forfeiture of any other property of the defendant . . . “ in any of the following scenarios: “(the property) cannot be located upon the exercise of due diligence; (the property) has been transferred or sold to, or deposited with, a third party; (the property) has been placed beyond the jurisdiction of the court; (the property) has been substantially diminished in value; or (the property) has been commingled with other property which cannot be divided without difficulty.”
The risk of loss in many other types of investments is just the amount of your investment. There is an old saying that you should not risk an investment if you can’t afford to lose it. If the investment fails, you only lose what you invested. However, with insider trading you risk losing not only what you gained, plus heavy penalties, but if the situation requires the forced liquidation of your other property, you never get your full value from the sale of the property.
The securities market always carries risks to the investor, and you can’t get around those risks through insider trading. The complex securities laws are created to level the playing field so all investors are subject to the same risks. Each fact scenario is different, and sometimes it may not seem clear which side of the line you may end up on. Experienced legal counsel is the best way to reduce those risks and possible violations of the law, resulting in harsh penalties and excessive losses. The attorneys at Bradshaw Law Group are available for knowledgeable advice and counsel.