Insider Trading Enforcement And Deterrence

by Michael Volkov
Contact

imagesCARBRUH6It is hard to know whether the government’s aggressive enforcement of insider trading laws deters criminals from violating securities laws.

One key factor in this equation is the risk of getting caught. The Obama Administration can certainly point to an increase in enforcement – civil and criminal.  Judges have been handing out stiff sentences for insider trading.

The 1980s were the so-called glory years of insider trading enforcement with the prosecutions of Ivan Boesky and Michael Milken.   The current decade has been another highwater era of enforcement.  Traditionally, most insider trader cases were brought in the Southern District of New York.  That has continued but federal prosecutors in other districts across the country are bringing more criminal insider trading cases than in the past.imagesCAD1ISMR

Federal prosecutors in New York point to high-profile prosecutions of Raj Rajartnam and his co-conspirators, who were brought down on wiretap evidence.  In all of the other criminal cases, prosecutors are relying on cooperating witnesses, recorded telephone calls and documents to prove the government’s case.  The FBI has been using aggressive investigation techniques to secure cooperating witnesses, relying on “ambush interviews” to convince potential defendants to cooperate and record phone calls.  These techniques have led to successful prosecutions of various private equity and hedge fund executives and traders, including Diamondback Capital Management, Level Global, and SAC Capitol Advisors.

The government recently convicted two executives from Diamondback and Level Global of insider trading; US Attorney Preet Bahara’s press release cited the defendants’ unfortunate calculation of “risk” and “reward” which led to their eventual downfall for millions of illegal profits through insider trading.  The government’s evidence consisted of cooperating witness testimony, emails and some instant messages.

Federal prosecutors are aiming at a lead target, SAC Capitol Advisors and its founder and leader, Steven Cohen.  Many of the government’s cases are aimed at building convictions and additional cooperating witnesses, all with the goal of bringing down Steven Cohen, who they suspect of long-time participating in insider trading schemes.

imagesCA3R2WZ5To put things in perspective, the Rajatnam conspiracy is alleged to have garnered $63 million in illegal profits, while the SAC Capitol Advisors profits are at an alleged minimum of $276 million and growing.

Federal prosecutors all around the country are relying on new sources of evidence – detailed trading data which is being mined for suspicious trade patterns.  Computerized reviews of trading activity help to identify suspects and then traditional investigative techniques may be used such as examining bank records or conducting witness interviews.

The government’s trial record in prosecutions of insider trading defendants is extremely impressive.  It is hard to remember a high profile case they have lost.  Juries can understand the issue of trading on confidential information and the cases are far less complex than typical white collar fraud cases.

Interestingly, as sentences in insider trading cases have increased, insider trading continues, some estimate at even higher rates.  Longer sentences and high-profile prosecutions do not appear to be deterring the criminal conduct.  The potential punishment is not the deterrent but the fact of getting caught.  That depends on federal funding of white collar investigators and law enforcement.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

Written by:

Michael Volkov
Contact
more
less

The Volkov Law Group on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!