Whistleblower Tips to the SEC About Insider Trading
Under federal securities laws, individuals are liable for insider-trading violations when they buy or sell a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. A “relationship of trust and confidence” may exist in many circumstances, as highlighted in SEC Rule 10b5-2. Information is considered “material” if it would be important to a reasonable investor in making an investment decision.
In addition, insider-trading violations may occur when an individual:
- tips material, nonpublic information;
- trades securities based on tipped information; or
- trades securities based on misappropriated information.
Recently, the Supreme Court has even lowered the bar for prosecuting individuals who trade on inside information from family or friends. In Salman v. United States, the Supreme Court held that government prosecutors are not required to show that money, property, or something of tangible value was provided in exchange for insider information from relatives or friends. The Court reasoned that “[i]n these situations, the tipper personally benefits because giving a gift of trading information to a [relative or friend] is the same thing as trading by the tipper followed by a gift of the proceeds.”
If you are aware of insider trading, you might be eligible for an SEC whistleblower bounty. Contact the whistleblower lawyers at Zuckerman Law at 202-262-8959 to learn about a potential SEC whistleblower reward and about federal laws protecting whistleblowers.
Purpose of Insider Trading Laws
Insider-trading laws are designed to protect market integrity and prevent individuals from profiting unlawfully. Prosecuting insider-trading violations is a top enforcement priority of the SEC.
Examples of Insider Trading Cases Bought by the SEC
According to the SEC’s Insider Trading webpage, the agency has brought insider-trading cases against:
- corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments;
- friends, business associates, family members, and other ‘tippees’ of such officers, directors, and employees, who traded the securities after receiving such information;
- employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded;
- government employees who learned of such information because of their employment by the government; and
- other persons who misappropriated, and took advantage of, confidential information from their employers.
SEC Insider Trading Enforcement Actions
In another recent enforcement action, on March 23, 2017, the SEC announced that it settled charges against Steven A. Hartung who allegedly earned $60,000 on a family member’s inside information about Merck & Co. Inc.’s 2014 acquisition of Idenix Pharmaceuticals. The SEC disgorged his gains and Hartung agreed to pay an equivalent penalty and interest for a total settlement of $123,000.
While this settlement amount would not qualify a whistleblower for an award, it nevertheless underscores that the SEC is targeting any individual who trades on inside information – even if it does not result in a multi-million-dollar profit.
In a separate enforcement action, hedge-fund manager Leon G. Cooperman and his firm, Omega Advisors, were charged with insider trading for purchasing securities based on material, nonpublic information. According to the SEC’s complaint, Cooperman learned of Atlas Pipeline Partners’ (“APL”) sale of its natural-gas processing facility from the company’s executive in advance of the public announcement. During this conversation, Cooperman allegedly told the executive that he would not to use the information for trading purposes. Thereafter, the hedge-fund manager purchased a substantial amount of APL’s stock, whose value increased by about 31% after the sale of the gas-processing facility.
On September 21, 2016, the SEC announced charges against Cooperman and Omega Advisors. In the complaint, the SEC seeks disgorgement of all ill-gotten gains plus interest, penalties, and permanent injunctions against Cooperman and Omega Advisors, as well as an officer-and-director bar against Cooperman.
SEC Whistleblower Reward Program
Under the SEC Whistleblower Program, whistleblowers may be eligible for monetary awards when they voluntarily provide the SEC with original information about violations of federal securities laws that leads the SEC to bring a successful enforcement action that results in monetary sanctions exceeding $1 million.
SEC Whistleblower Bounties
Whistleblowers are eligible to receive between 10% and 30% of the monetary sanctions collected. On September 22, 2014, a whistleblower was awarded more than $30 million for providing key information that led to a successful enforcement action.
SEC Whistleblower Protection
The SEC Whistleblower Program also protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Furthermore, the Dodd-Frank Act and Sarbanes-Oxley Act protect whistleblowers from retaliation by their employers for reporting violations of securities laws.
Washington DC SEC Whistleblower Law Firm
The experienced whistleblower lawyers at Zuckerman Law represent whistleblowers worldwide before the SEC under the Dodd-Frank SEC Whistleblower Program. The firm has a licensed Certified Public Accountant and Certified Fraud Examiner on staff to enhance its ability to investigate and disclose complex financial fraud to the SEC, and two of the firm’s attorneys served in high-level position at a government agency that protects whistleblowers. Firm Principal Jason Zuckerman has been named by Washingtonian Magazine as a “Top Whistleblower Lawyer” and the firm has been ranked by U.S. News as a Tier 1 Firm in Labor & Employment Litigation.
Whistleblower law firm Zuckerman Law has substantial experience investigating securities fraud schemes and preparing effective submissions to the SEC concerning a wide range of federal securities violations, including:
- Accounting fraud;
- Investment and securities fraud;
- EB-5 investment fraud;
- Manipulation of a security’s price or volume;
- Fraudulent securities offerings and Ponzi schemes;
- Unregistered securities offerings;
- Investment adviser fraud;
- False or misleading statements about a company or investment;
- Inadequate internal controls; and
- Violations of auditor independence rules.
For more information about the SEC Whistleblower Program, see the following resources:
Zuckerman Law SEC Whistleblower Reward Program FAQwhistleblower_lawyers_012017_infographic