There is no federal statute called “insider trading.”
That is the single most clarifying fact about this area of law, and it explains almost everything else. Congress never enacted an insider trading offense. What exists is 15 U.S.C. § 78j(b), which prohibits “any manipulative or deceptive device or contrivance,” and Rule 10b-5, which prohibits fraud in connection with the purchase or sale of a security. Everything the phrase “insider trading” refers to was built by courts, case by case, on top of those two provisions.
The consequence is that insider trading is not an information-advantage offense. Trading with better information than the market is lawful and is what analysts are paid to do. What makes trading unlawful is a breach of duty. As the Supreme Court put it in Dirks v. SEC, “[a] duty [to disclose] arises from the relationship between parties … and not merely from one’s ability to acquire information because of his position in the market.”
Identifying the duty — who owed it, to whom, and whether it was breached — is the whole analysis.
The two theories, and what each requires
| Classical theory | Misappropriation theory | |
|---|---|---|
| Who is liable | A corporate insider — officer, director, employee — and “temporary insiders” such as attorneys, accountants and consultants | An outsider who owes no duty to the traded company’s shareholders |
| Duty owed to | The shareholders of the company whose securities are traded | The source of the information |
| The deception | Trading on the company’s information without disclosing to shareholders | Feigning fidelity to the source while secretly using its information to trade |
| Leading case | Chiarella v. United States, 445 U.S. 222 (1980) | United States v. O’Hagan, 521 U.S. 642 (1997) |
| What defeats it | No relationship of trust and confidence with the counterparty | Disclosure to the source — with full disclosure there is no deception and no § 10(b) violation |
Table: the two theories of insider trading liability. Both were built under § 10(b) and Rule 10b-5; neither appears in any statute.
Chiarella: possession of information is not enough
Vincent Chiarella worked at a financial printer. Handling documents for pending tender offers, he deduced the identities of target companies before the offers were announced, and traded. He had material nonpublic information that no other market participant had. He was convicted, and the Supreme Court reversed.
The holding is precise: “a duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information.” Liability for silence “is premised upon a duty to disclose arising from a relationship of trust and confidence between parties to a transaction.” Chiarella had no such relationship with the shareholders from whom he bought.
The Court also stated the general principle that governs every nondisclosure case: “one who fails to disclose material information prior to the consummation of a transaction commits fraud only when he is under a duty to do so. And the duty to disclose arises when one party has information ‘that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.'” And it closed the door on reading § 10(b) as a general fairness provision: “Section 10(b) is aptly described as a catchall provision, but what it catches must be fraud. When an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak.”
The classical theory survives Chiarella and is described in O’Hagan: § 10(b) and Rule 10b-5 “are violated when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information,” because “a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation.” It applies “not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, consultants, and others who temporarily become fiduciaries of a corporation.”
On this page
O’Hagan: the misappropriation theory
Chiarella left a gap. An outsider who steals confidential information from his own employer and trades on it owes no duty to the company whose shares he buys. Is that fraud?
United States v. O’Hagan held that it is. A lawyer at a firm retained on a tender offer traded in the target’s shares. The Court held “that criminal liability under § 10(b) may be predicated on the misappropriation theory”: a person “commits fraud ‘in connection with’ a securities transaction … when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.”
Two features of O’Hagan are load-bearing for the defense.
Disclosure to the source defeats the theory entirely. “Deception through nondisclosure is central to the theory of liability.” And “because the deception essential to the misappropriation theory involves feigning fidelity to the source of information, if the fiduciary discloses to the source that he plans to trade on the nonpublic information, there is no ‘deceptive device’ and thus no § 10(b) violation.” The trader might still be liable to his principal under state law for breach of loyalty — but not under the securities laws.
§ 10(b) is not a general breach-of-fiduciary-duty statute. The Court took care to say that the misappropriation theory is consistent with Santa Fe Industries, “a decision underscoring that § 10(b) is not an all-purpose breach of fiduciary duty ban; rather, it trains on conduct involving manipulation or deception.”
O’Hagan also emphasized the criminal safeguards. “Vital to our decision that criminal liability may be sustained under the misappropriation theory, we emphasize, are two sturdy safeguards Congress has provided regarding scienter. To establish a criminal violation of Rule 10b-5, the Government must prove that a person ‘willfully’ violated the provision. … Furthermore, a defendant may not be imprisoned for violating Rule 10b-5 if he proves that he had no knowledge of the Rule.” That second safeguard is 15 U.S.C. § 78ff(a), it applies to imprisonment rather than fines, and it is not available on a § 1348 count.
Rule 10b5-2: where the duty comes from
Because the misappropriation theory depends on a duty to the source, the SEC adopted a rule identifying when one exists. 17 C.F.R. § 240.10b5-2 provides “a non-exclusive definition of circumstances in which a person has a duty of trust or confidence for purposes of the ‘misappropriation’ theory.” Three are listed:
- “Whenever a person agrees to maintain information in confidence.”
- “Whenever the person communicating the material nonpublic information and the person to whom it is communicated have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality.”
- “Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling” — subject to an express rebuttal provision.
That third circumstance carries its own defense, and it is written into the rule. A family member “may demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties’ history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information.”
In a family-trading case that rebuttal is often the case. It requires evidence about how the household actually handled information — which is exactly the kind of evidence that has to be gathered early.
Tipping liability: the personal-benefit test
Most insider trading prosecutions are not against the person who possessed the information. They are against someone further down a chain. The doctrine governing that chain is the most contested area in this field and the one that has moved most.
Dirks: liability is derivative, and requires a personal benefit
Dirks v. SEC, 463 U.S. 646 (1983), holds that “a tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach.”
So a tippee’s liability is derivative. If the insider did not breach a duty, the tippee cannot be liable no matter how valuable the information was.
And whether the insider breached turns on benefit: “the test is whether the insider personally will benefit, directly or indirectly, from his disclosure. Absent some personal gain, there has been no breach of duty to stockholders.”
Dirks directs courts to “focus on objective criteria,” and gives examples: “a pecuniary gain or a reputational benefit that will translate into future earnings”; “a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the particular recipient.” And it supplies the gift theory: “[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”
Newman: what the Second Circuit added — and what survives
In United States v. Newman, 773 F.3d 438 (2d Cir. 2014), the Second Circuit reversed the convictions of two portfolio managers three and four levels removed from the source, and held two things.
First, on knowledge: “in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit.” A tippee’s “knowledge of the insider’s breach necessarily requires knowledge that the insider disclosed confidential information in exchange for personal benefit.”
Second, on what a personal benefit is: the court held that an inference of benefit from a personal relationship “is impermissible in the absence of proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” It added that the government may not prove benefit “by the mere fact of a friendship, particularly of a casual or social nature,” because if being “alumni of the same school or attend[ing] the same church” sufficed, “the personal benefit requirement would be a nullity.”
Salman: the Supreme Court rejected half of that
Salman v. United States, 580 U.S. 39 (2016), took up the gift question and reaffirmed Dirks: “a jury can infer a personal benefit — and thus a breach of the tipper’s duty — where the tipper receives something of value in exchange for the tip or ‘makes a gift of confidential information to a trading relative or friend.'”
And it named exactly what it was rejecting: “To the extent the Second Circuit held that the tipper must also receive something of a ‘pecuniary or similarly valuable nature’ in exchange for a gift to family or friends, Newman, 773 F. 3d, at 452, we agree with the Ninth Circuit that this requirement is inconsistent with Dirks.”
So the current position is split, and stating it precisely matters:
| Newman holding | Status |
|---|---|
| The tippee must know the tipper disclosed for a personal benefit | Intact. Salman recorded the Government’s own acknowledgment that “to establish a defendant’s criminal liability as a tippee, it must prove that the tippee knew that the tipper breached a duty — in other words, that the tippee knew that the tipper disclosed the information for a personal benefit and that the tipper expected trading to ensue.” |
| For a gift to a trading relative or friend, the tipper must receive something of a “pecuniary or similarly valuable nature” | Rejected by Salman as “inconsistent with Dirks.” |
| A “meaningfully close personal relationship” is required to infer benefit from a relationship | Unsettled beyond the gift context. Salman expressly did not decide what happens with “a gift of confidential information to a mere acquaintance or a stranger,” or what proof is needed where the relationship is not a close family one. |
Table: what survives of Newman after Salman. Pages that cite Newman for a general pecuniary-benefit requirement, and pages that describe Newman as wholly overruled, are both wrong.
The defense consequence is that the knowledge element remains the strongest ground in remote-tippee cases. Newman also held that “where the financial information is of a nature regularly and accurately predicted by analyst modeling, and the tippees are several levels removed from the source, the inference that defendants knew, or should have known, that the information originated with a corporate insider is unwarranted” — a holding Salman did not disturb, and one that speaks directly to the position of a fund manager who received a number from a research analyst.
Rule 14e-3: the tender-offer exception where duty does not matter
Everything above depends on a duty. There is one important area where it does not.
Rule 14e-3, adopted under § 14(e) of the Exchange Act, provides that once “any person has taken a substantial step or steps to commence, or has commenced, a tender offer,” it is “a fraudulent, deceptive or manipulative act or practice” for any other person in possession of material information relating to that tender offer — information “he knows or has reason to know is nonpublic” and “has been acquired directly or indirectly from” the offering person, the issuer, or anyone acting on their behalf — to trade in the subject securities, “unless within a reasonable time prior to any purchase or sale such information and its source are publicly disclosed.”
Read that against Chiarella: no breach of fiduciary duty appears in the rule. In the tender-offer context, possession plus a covered source is enough.
The Supreme Court upheld the rule in O’Hagan, framing the question as whether the Commission “exceed[ed] its rulemaking authority under § 14(e) when it adopted Rule 14e-3(a) without requiring a showing that the trading at issue entailed a breach of fiduciary duty,” and holding “that the Commission, in this regard and to the extent relevant to this case, did not exceed its authority.” The Court treated it as a valid prophylactic measure in a setting where a breach is likely but hard to prove.
Two further provisions matter:
- Rule 14e-3(d) separately prohibits tipping. Persons connected to the offering person or the issuer, and anyone holding information they know or have reason to know came from those sources, may not communicate it “under circumstances in which it is reasonably foreseeable that such communication is likely to result in a violation” — subject to good-faith exceptions for communications to those “involved in the planning, financing, preparation or execution” of the offer, and for disclosures required by law.
- Rule 14e-3(b) gives entities a defense: a non-natural person does not violate paragraph (a) if the individual making the investment decision “did not know the material, nonpublic information” and the entity “had implemented one or a combination of policies and procedures, reasonable under the circumstances” to prevent such trading — the information-barrier defense, and one that only exists if the procedures were actually in place beforehand.
The practical significance is that in any M&A-adjacent matter, the government has a theory that does not require it to prove a duty at all — provided it can show a substantial step toward a tender offer, which is a specific transaction structure and not every acquisition. Whether the transaction in question was a tender offer is therefore a threshold question worth testing.
Rule 10b5-1 plans, and the 2022 amendments
Rule 10b5-1 provides an affirmative defense: a purchase or sale “is not on the basis of material nonpublic information” if, before becoming aware of the information, the person had entered a binding contract, given an instruction, or adopted a written plan that specified the amount, price and date of trades — or a formula or algorithm for determining them — or that “[d]id not permit the person to exercise any subsequent influence over how, when, or whether to effect purchases or sales.”
The SEC amended the rule substantially in December 2022 (87 FR 80429), with the amendments effective 27 February 2023, and a great deal of published material still describes the pre-amendment rule. The current conditions:
| Condition | Requirement |
|---|---|
| Good faith | The plan must be “given or entered into in good faith and not as part of a plan or scheme to evade the prohibitions of this section,” and the person “has acted in good faith with respect to the contract, instruction or plan” — an ongoing obligation, not just an entry condition |
| Cooling-off — directors and officers | No trades until the later of 90 days after adoption or two business days after disclosure of the issuer’s financial results in a Form 10-Q or 10-K for the quarter in which the plan was adopted — subject to a maximum of 120 days |
| Cooling-off — everyone else (not the issuer, not a D&O) | 30 days after adoption |
| D&O certification | Directors and officers must include a representation certifying that, at adoption, they are not aware of material nonpublic information and are adopting the plan in good faith |
| No overlapping plans | Persons other than the issuer generally may not have more than one outstanding plan for open-market trades qualifying for the defense, subject to limited exceptions (separate broker contracts, one later-commencing plan, sell-to-cover transactions) |
| Single-trade plans | Limited to one in any 12-month period, unless the plan provides only for an eligible sell-to-cover transaction |
| Modification = new plan | “Any modification or change to the amount, price, or timing” of the underlying trades “is a termination of such contract, instruction, or written plan, and the adoption of a new contract, instruction, or written plan” — which restarts the cooling-off clock |
Table: the current Rule 10b5-1(c) affirmative defense, as amended effective 27 February 2023.
Two points that matter in an actual case.
The good-faith requirement is continuing. The 2022 rule requires not only that the plan was entered into in good faith but that the person “has acted in good faith with respect to” it. Canceling a plan on the basis of inside information, or manipulating the timing of a corporate disclosure around a plan, is where this bites.
Modification restarts everything. Because any change to amount, price or timing terminates the plan and creates a new one, a plan modified shortly before a disclosure loses the defense unless the new cooling-off period ran. This is a trap that catches people who thought they were being cautious.
And a structural point: Rule 10b5-1 is an affirmative defense, not an element the government must negate. It is the defendant’s to establish, and it is only as good as the documentation of when the plan was adopted and what the person knew at that moment.
What the government has to prove in a criminal case
- A duty — under either theory, and identified with precision;
- Material nonpublic information — materiality under the Basic “total mix” standard, and information that was genuinely not public;
- Breach of the duty — for a tipper, requiring a personal benefit under Dirks;
- Trading on the basis of the information — Rule 10b5-1(b) treats a person as trading “on the basis of” MNPI if aware of it when trading, subject to the (c) defense;
- Scienter — “intent to deceive, manipulate, or defraud” (Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976));
- Willfulness — required for the criminal offense by § 78ff(a); and
- For a tippee, knowledge that the tipper disclosed in breach of a duty for a personal benefit.
The government does not have to prove that anyone lost money, or that the trades were profitable. Loss and gain return at sentencing.
How these cases are proved, and where they are attacked
Trading records are the spine. Every trade is timestamped and attributed, and the government obtains complete blue-sheet data. The typical case begins with a surveillance flag — an exchange or FINRA notices unusual volume before an announcement — and works backwards from the traders to their communications.
Communications are the theory. Calls, texts, chats and email between the trader and the source, timed against the trades, are what the case is built from. In remote-tippee prosecutions the government reconstructs a chain and asks the jury to infer knowledge at each link.
Where the defense is:
- The duty. Was there one, to whom, and was it breached? Under Rule 10b5-2 the family duty is expressly rebuttable, and the “history, pattern, or practice” ground requires actual evidence of such a practice.
- Materiality and non-public status. Was the information material under the Basic balancing test, particularly for contingent events? And was it genuinely nonpublic — information circulating among analysts, in trade press, or reconstructable from public data is a real defense, and it is the point Newman made about “financial information … of a nature regularly and accurately predicted by analyst modeling.”
- Personal benefit. Dirks requires it, and Salman did not eliminate it — it decided only how it can be proved in the gift case.
- Tippee knowledge. The strongest ground in remote cases, and the Newman holding Salman left intact.
- The independent trading rationale. Contemporaneous evidence of why the trade was made — a rebalancing, a margin call, a pre-existing thesis, an analyst’s own model — is what a jury weighs against the timing.
- Rule 10b5-1. If a compliant plan existed, the affirmative defense is available, and the documentation is decisive.
- Willfulness and the no-knowledge provision. § 78ff(a) requires willfulness and bars imprisonment for a rule violation where the defendant proves he had no knowledge of the rule.
What “material nonpublic information” actually means
Two words in that phrase carry most of the disputes.
Material. The standard is the Basic “total mix” test: a substantial likelihood that a reasonable investor would have viewed the fact as significantly altering the total mix of information available. For events that had not yet happened — a merger under discussion, an approval not yet granted, a contract not yet signed — materiality turns on “a balancing of both the indicated probability that the event will occur and the anticipated magnitude of the event.” Early-stage discussions that never reached a board, generated no instruction to bankers, and concerned a transaction small relative to the company are a genuinely weaker case than the government’s chronology suggests.
Nonpublic. Information is not nonpublic merely because it has not been in a press release. Where a figure was reconstructable from public data, circulating among analysts, or reported in trade press, the government’s case weakens considerably — this is the ground on which Newman observed that “where the financial information is of a nature regularly and accurately predicted by analyst modeling,” the inference that a remote tippee knew it came from an insider “is unwarranted.” Establishing what was actually in the public domain at the relevant moment takes real work and is frequently not done by the government at all.
“On the basis of.” Rule 10b5-1(b) supplies the standard: a purchase or sale is “on the basis of” material nonpublic information if the person was aware of it when trading. That is an awareness test rather than a use test, which is why the Rule 10b5-1(c) affirmative defense exists at all — it is the mechanism by which someone who is aware can nonetheless trade lawfully under a pre-existing plan.
Penalties and collateral consequences
| Exposure | Maximum |
|---|---|
| Willful violation of § 10(b)/Rule 10b-5 (§ 78ff(a)) | 20 years; $5,000,000 fine ($25,000,000 for an entity) |
| Securities fraud (§ 1348) | 25 years |
| SEC civil penalties, disgorgement, injunction, officer-and-director bar, industry bar | Monetary and remedial; disgorgement limited to net profits, for victims (Liu v. SEC, 591 U.S. 71 (2020)) |
| SEC limitations period for scienter-based disgorgement and for bars | 10 years (15 U.S.C. § 78u(d)(8)) |
Table: exposure in a criminal and parallel civil insider trading matter.
At sentencing, insider trading is referenced to U.S.S.G. § 2B1.4, which uses the gain resulting from the offense, measured against the § 2B1.1 loss table, as the operative figure. What counts as gain, whether it should be measured at the announcement or at a later sale, and whether a defendant is accountable for gains realized by others, are all contested. Amendment 836, effective 1 November 2025, deleted Chapter Five, Part H and struck the § 2B1.1 departure notes, so mitigation must be framed as a variance under 18 U.S.C. § 3553(a). Our federal sentencing pages address that.
We do not predict sentences and we do not tell readers whether a particular trade was lawful.
Where this sits
Insider trading is one part of a wider securities enforcement picture. The interaction between the SEC’s civil case and the criminal prosecution — and the decision about testimony that sits at the center of it — is on our securities fraud attorney hub, and the mechanics of an SEC investigation are on our sec defense lawyer page. Where the conduct also involves raising money from investors on false representations, see investment fraud attorney. Insider trading indictments frequently carry wire fraud counts — each communication and each trade confirmation is a separate § 1343 count — and money laundering counts where the proceeds moved between accounts. Undeclared trading gains add tax exposure, and where the information came from a company the defendant served, the same conduct can be charged as embezzlement of a corporate asset. How those counts group at sentencing is covered in the white collar crime lawyer page.
Where a conviction has already been entered, direct review runs through federal appeals and claims outside the trial record through a § 2255 motion. Elizabeth Franklin-Best, P.C. is a federal criminal defense attorney practice representing individuals in federal securities matters nationwide.
Frequently Asked Questions About Insider Trading Charges
Is there actually a law against insider trading?
Not a statute by that name. Insider trading is prosecuted under 15 U.S.C. § 78j(b) and Rule 10b-5, general antifraud provisions, as interpreted by the courts over several decades. That is why the elements come from cases rather than from a statutory text, and why the law in this area moves. The statutory offenses that are defined by text — including 18 U.S.C. § 1348, which carries twenty-five years — are set out on our securities fraud attorney page.
Is it illegal to trade on information other people don’t have?
No. Trading with an information advantage is lawful; that is what research is for. What is unlawful is trading in breach of a duty — a distinction that separates lawful research from a federal criminal defense problem. Chiarella v. United States, 445 U.S. 222, 235 (1980), holds that “a duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information,” and that “[w]hen an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak.”
What is the misappropriation theory?
The theory that a person who takes confidential information from the source he owes a duty to, and trades on it, commits fraud even though he owes no duty to the shareholders on the other side of his trade. United States v. O’Hagan, 521 U.S. 642 (1997), adopted it. Its critical limit is disclosure: “if the fiduciary discloses to the source that he plans to trade on the nonpublic information, there is no ‘deceptive device’ and thus no § 10(b) violation.”
My spouse told me something and I traded. Is that insider trading?
It depends on whether a duty of trust or confidence existed, and Rule 10b5-2 presumes one where information comes from “his or her spouse, parent, child, or sibling.” But the rule contains an express rebuttal: the recipient may show that no duty existed by establishing that he “neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential,” based on the parties’ actual history and practice and the absence of any agreement. Whether that rebuttal is available turns on evidence about how the household actually treated information — which makes it a documentary and testimonial question, and one that a spouse should not answer in an SEC investigation without separate counsel.
Does the tipper have to get paid?
The tipper must receive a personal benefit, but it need not be money. Dirks v. SEC, 463 U.S. 646, 662–64 (1983), lists “a pecuniary gain or a reputational benefit that will translate into future earnings,” a relationship suggesting a quid pro quo, or “an intention to benefit the particular recipient.” And a gift of confidential information “to a trading relative or friend” is itself a benefit, because “[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”
Is Newman still good law?
Partly. Salman v. United States, 580 U.S. 39 (2016), rejected Newman’s requirement that a tipper receive something “of a pecuniary or similarly valuable nature” in exchange for a gift to family or friends, holding that requirement “inconsistent with Dirks.” But Newman’s knowledge holding — that the government must prove the tippee knew the tipper disclosed for a personal benefit — was not disturbed, and Salman recorded the Government’s own acknowledgment of it. Anyone describing Newman as wholly overruled, or as still requiring pecuniary benefit for gifts, is stating it wrong. Where a conviction rests on the discarded half, the vehicle is a federal appeal or, once the conviction is final, a § 2255 motion.
Does a 10b5-1 plan protect me?
It can, if it complies with the current rule — which was substantially amended effective 27 February 2023. The plan must have been adopted in good faith before you became aware of the information; there is a cooling-off period of the later of 90 days or two business days after the next quarterly or annual results disclosure (capped at 120 days) for directors and officers, and 30 days for others; directors and officers must certify at adoption that they are not aware of MNPI; overlapping plans and repeated single-trade plans are limited; and any modification to amount, price or timing terminates the plan and creates a new one, restarting the clock. It is an affirmative defense, so it is yours to establish. Whether a given plan meets the current conditions is a document review, and it is worth doing before rather than after a subpoena arrives; a federal criminal defense practice can run it in parallel with the regulatory response.
Is there any situation where I can be liable without breaching a duty?
Yes — tender offers. Rule 14e-3(a) makes it unlawful to trade in the subject securities while in possession of material nonpublic information about a tender offer that you know or have reason to know came from the offering person, the issuer or their agents, once a substantial step toward the offer has been taken. No breach of fiduciary duty is required, and the Supreme Court upheld the rule on that basis in United States v. O’Hagan, 521 U.S. 642, 666–77 (1997). Whether the transaction actually was a tender offer — a specific structure, not every acquisition — is the threshold question.
What is the maximum sentence for insider trading?
Twenty years per count under 15 U.S.C. § 78ff(a), with a $5,000,000 fine for an individual, and twenty-five years if charged under 18 U.S.C. § 1348. What is actually imposed is driven by the guideline calculation under U.S.S.G. § 2B1.4 — which uses the gain from the trades rather than a loss figure — and by the 18 U.S.C. § 3553(a) factors. We do not estimate ranges for individual cases; the mechanics of the calculation are on our federal sentencing pages.
Can the SEC come after me even if I am not prosecuted?
Yes, and for longer. The SEC’s burden is a preponderance of the evidence rather than proof beyond a reasonable doubt, and 15 U.S.C. § 78u(d)(8) gives it ten years for scienter-based disgorgement and for “any equitable remedy, including for an injunction or for a bar, suspension, or cease and desist order” — twice the ordinary five-year criminal period. An industry bar or an officer-and-director bar can end a career independently of any criminal outcome. Where money raised from investors is also in issue, the parallel civil exposure described on our investment fraud page runs alongside.
The trades were flagged years ago and nothing happened. Am I clear?
Not necessarily. Surveillance referrals sit for long periods, and the SEC’s ten-year window for scienter-based remedies means old conduct remains actionable civilly even where the criminal period has run. Silence is not closure, and the first notice is often a subpoena. What follows one is set out on our SEC investigation defense page.
By Elizabeth Franklin-Best, Esq. — Principal Attorney & Founder, Elizabeth Franklin-Best, P.C.
Under Investigation for Insider Trading?
These cases turn on what you knew, when, and what duty attached to it — questions that are far easier to address before testimony is locked in.
Representation begins with a paid, one-hour consultation — a working session in which we review where matters stand and tell you honestly what options remain. We do not promise outcomes.
Reviewed for legal accuracy by Elizabeth Franklin-Best, Esq., Principal Attorney·September 2026