Insider Trading: Who Knew Before the Market Did?

Illegal insider trading involves buying or selling securities while aware of material nonpublic information, in breach of a duty of trust or confidence. The revealing detail may be an earnings figure passed to a fund manager or a confidential acquisition email followed by an options order. This page follows the information from the person entrusted with it to the trade. If you know how that information moved, you may know the part that market data leaves out.

What Makes a Trade Insider Trading?

The information has to be important to an investor and not yet public, such as unreleased earnings or a pending acquisition. Buying ahead of good news or selling ahead of bad news can turn that information into a private advantage. The Securities and Exchange Commission’s cases connect that advantage to the trader’s duty and the transaction.

A company insider who trades its stock on confidential news breaks a duty to the shareholders. An outsider can break a duty to the employer or client who entrusted them with the information. Accountants and consultants can hold confidential company information through their work, too.

Tipping carries the information beyond the original source. A gift of inside information to a friend or relative who trades can be part of an insider trading case. We examine who shared the news, why they shared it and what the trader knew about its source.

Galleon’s Alleged Tips Came From Inside Other Businesses

Galleon Management’s alleged trading network connected corporate employees, professional contacts and fund personnel. The Securities and Exchange Commission’s October 2009 charging announcement described more than $25 million in alleged illicit gains. Its complaint traced confidential earnings and takeover information through friends and business associates into trades made for the hedge fund.

The Commission alleged that an Intel Capital managing director supplied information about Intel quarterly earnings and a pending joint venture involving Clearwire, in which Intel had invested. Galleon’s manager allegedly used it to trade for the fund. As payback, the manager or someone acting for him allegedly placed trades in the source’s personal brokerage account using inside information about Hilton and PeopleSupport, generating nearly $250,000 in alleged illicit profits for the source. In the Commission’s account, inside trading paid for more inside trading.

In another part of the complaint, an IBM executive allegedly passed information about Sun Microsystems to a New Castle portfolio manager while IBM was considering buying Sun. She allegedly traded for New Castle on that information. For someone inside a company or fund, those are recognizable connections: a pending transaction, a person with access, an outside recipient and an account that traded.

How Does Someone Who Does Illegal Insider Trading Have an Unfair Advantage Over Other Investors?

The trader can act on important company information before other investors receive it. A paper in the Wisconsin Law Review, Insider Trading and the Integrity of Mandatory Disclosure, argues that this also undermines the public disclosure process. Its 2018 analysis explains why the interval before an earnings release matters: companies compile and verify information before releasing it to investors.

If you work on financial reporting, you know the interval while information exists inside the business and the company checks it for public release. In the paper’s account, trading on advance knowledge of quarterly earnings lets a few people profit from information produced for all investors. The verification period becomes somebody else’s trading opportunity.

How Hard Is It to Prove Insider Trading?

The central challenge in proving insider trading is showing what the trader knew when the order went in. An insider’s explanation can connect the confidential news to the trade. An acquisition email can identify the news and its recipients. A confidentiality agreement or trading policy can establish what the recipient agreed to protect. The brokerage record supplies the security, the order and its timing.

We examine those connections with the person who understands the work behind them. The communications and transaction records become more useful when you can explain why someone received the information, what it meant inside the business and how it reached the person who traded. In a tipping chain, that explanation can connect a corporate source to a recipient at a fund. In a direct trade, the same employee may hold both the confidential email and the brokerage account.

Acquisition News at Medivation, Options in Incyte

The Securities and Exchange Commission’s case against a Medivation business development executive shows how specific those connections can become. A federal jury found the executive liable for insider trading in April 2024. The case concerned confidential news about Pfizer’s impending acquisition of Medivation and the executive’s purchase of options in Incyte, another biopharmaceutical company.

The SEC complaint described work that put both the acquisition news and the industry comparison in his hands. His job included evaluating acquisitions, tracking other companies’ drug pipelines and following their stock prices. The complaint alleged that he reviewed investment bankers’ presentations comparing Medivation with Incyte as oncology-focused companies with commercial-stage drugs. Those comparisons explained why news about one business could matter to an investment in the other.

According to the complaint, the executive agreed to keep company information confidential and signed an insider trading policy covering trades in other public companies. The policy expressly included:

The complaint then connected an email from Medivation’s chief executive about the impending acquisition to options bought within minutes from the employee’s work computer. It alleged that he had never traded Incyte stock or options before and did not seek authorization or tell Medivation about the trades. We see a policy that reached other companies and a trade that did too.

What Does an Advance Trading Plan Change?

An advance trading plan adds another date to the evidence: when the trader arranged the transactions. That date belongs beside the timing of the confidential news and the trades. We examine when the arrangement was adopted, how it set the trades, what discretion remained and whether later orders followed its terms.

The Securities and Exchange Commission’s 2022 final rule on insider trading arrangements tightened the rules on when trading under a plan can start and on running overlapping plans. For an employee who knows when confidential information reached management, the plan’s adoption and changes are records to line up against that news.

Who Investigates Insider Trading?

The Securities and Exchange Commission investigates insider trading and brings civil enforcement actions. The Justice Department and U.S. Attorneys’ Offices prosecute federal criminal cases, and the agencies can work in parallel. FINRA supervises and disciplines member firms and their associated persons, while state securities regulators have their own authority. We assess which authorities fit the conduct with you.

Can You Report Someone for Insider Trading?

Yes, information about insider trading can support a report to the SEC. An SEC insider trading whistleblower can contribute the explanation connecting confidential information, access, communications and actual trades. You may know why a fund received an earnings number, who was included in a deal discussion or how an employee understood the connection between two companies. We work with you on a securities fraud report grounded in what you know.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Insider trading reports use the Securities and Exchange Commission’s separate whistleblower program. Eligible whistleblowers can share awards totaling 10% to 30% of the money collected from qualifying sanctions, when the action results in more than $1 million in sanctions.

The award depends on the information and the enforcement it supports. We assess that opportunity with you and bring in securities fraud whistleblower lawyers who understand insider trading evidence.

You Know Where the Information Came From

If you can connect confidential company news to a trade, speak with our whistleblower experts about the information’s path. We work beside you to build the case around the communications, duties and transactions you understand, and match it with securities fraud whistleblower lawyers who know this evidence. We stay with you as your account of what happened inside the business becomes the case we pursue together.