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Spotlight on Insider Trading

Illegal insider trading refers generally to buying or selling 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. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information.

The SEC regularly brings insider trading enforcement actions 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.
Other persons who misappropriated, and took advantage of, confidential information from their employers.

SEC's Year-by-Year Enforcement of Insider Trading

A bar graph showing the number of insider trading enforcement actions brought by the SEC each year from 2004 to 2008. In 2004 there were 42 cases, in 2005 there were 50 cases, in 2006 there were 46 cases, in 2007 there were 47 cases, and in 2008 there were 61 cases.

Recent Remarks on Insider Trading

"We at the SEC are committed to pulling back the curtain on hedge fund operations and taking a close look at their activity. We are developing a variety of initiatives to do that involving greater specialization and expertise, improved technological tools to track and analyze trading, better coordination among regulators and law enforcement, new legislative initiatives, and other means to address these areas.

"It would be wise for investment advisers and corporate executives to closely look at today’s case, their own internal operations, and the increasing focus and scrutiny on hedge fund trading activity by the SEC and others, and consider what lessons can be learned and applied to their own operations."

— SEC Enforcement Director Robert Khuzami,
Remarks at News Conference, Oct. 16, 2009

"The SEC is focusing on several issues involving hedge funds and other institutional traders, including (i) possible manipulation, abusive short selling and collusion; (ii) valuation concerns with respect to illiquid assets; and (iii) potential insider trading in a host of circumstances, including prior to mergers and acquisitions and in the credit derivatives market. The Enforcement Division has formed a Hedge Fund Working Group to address these and other issues arising in investigations relating to hedge funds. … The SEC has dozens of active investigations involving individuals associated with hedge funds. … In addition, to better detect any insider trading before material corporate events, the Hedge Fund Working Group is developing technological tools that will enable staff to more readily capture patterns of unlawful trading by hedge funds and institutional traders."

— SEC Commissioner Elisse B. Walter,
Congressional Testimony on Securities Law Enforcement, March 20, 2009