New Jersey Court Discusses the Crime of Insider Trading Under Federal Law

There are many acts that may constitute “white-collar crimes,” which are offenses that are financially motivated and usually committed by business professionals. For example, engaging in insider trading will often lead to criminal charges. Recently, a New Jersey court refuted a defendant’s claims that insider trading is not a crime under any state or federal statute, and therefore the charges brought against him must be dismissed. If you are charged with insider trading or another white-collar crime, it is advisable to speak to a practiced New Jersey criminal defense attorney to discuss your rights.

Facts of the Case

It is reported that the defendant worked as an attorney at a publicly-traded technology company. He was a member of the company’s disclosure committee and therefore had access to the company’s SEC filings. The Government alleged that from 2011 through 2016, the defendant engaged in an insider trading scheme to defraud both the company and its shareholders. Specifically, he used private information he received as a member of the disclosure committee to make trades before the information was made public. In doing so, the defendant realized a benefit of over half a million dollars. He was subsequently charged with twelve counts of securities and wire fraud. He then filed a motion to dismiss, arguing that the criminal insider trading laws were unconstitutional because no statute explicitly defined insider trading as a crime.

The Crime of Insider Trading Under Federal Law

15 U.S.C. 78j prohibits the use of any deceptive or manipulative device in violation of the regulations and rules of the Securities and Exchange Commission (SEC) that were enacted to protect investors and the public interest. The court explained that insider trading is considered a deceptive trade practice under the classical theory of interpretation of section 78j. In other words, courts have interpreted a deceptive or manipulative device to include trades made by a corporate insider based on information that is material and not disclosed to the public.

As corporate officers and attorneys owe a fiduciary duty to the shareholders of a publicly traded corporation, they must either disclose material facts or refrain from engaging in trades based on such information. Further, contrary to the defendant’s assertion, the SEC issued a rule barring acts that fell under the classic definition of insider trading. In the subject case, the court found that the defendant’s behavior fell squarely within the definition of deceptive and manipulative devices. Specifically, he used non-public, material information to make trades that would allow him to make a profit and avoid losses, and did so while subject to an employer-imposed blackout period. As such, his motion was denied.

Speak to a Trusted New Jersey Attorney

White-collar crimes can result in significant penalties, and it is critical for anyone charged with such a crime to retain a skilled attorney. Whether you are charged with insider trading, fraud, or any other crime, the trusted New Jersey criminal defense attorneys of The Law Offices of Jonathan F. Marshall can advise you of your options and develop a strategy to help you seek a favorable outcome in consideration of the facts of your case. We can be reached through our online form or at 877-450-8301 to set up a meeting.

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