SEC Prioritizes Insider Trading Enforcement

Double exposure of abstract creative financial diagram with world map and with finger clicks on a digital tablet on background, banking and accounting concept

If 2021 is any indication, insider trading will remain a key enforcement area for the Securities and Exchange Commission (SEC) in 2022. While the total number of insider trading actions brought last year has declined, the actions that have been brought indicate that the SEC will be pursuing new legal theories that will push the boundaries of insider trading jurisprudence. New enforcement actions will target insider trading, cybersecurity, and other disclosures, while cases filed under the Foreign Corrupt Practices Act, broker-dealer cases, and financial reporting and audit actions have declined.

When it comes to insider trading cases, the SEC has expanded the types of cases that were filed to include cases regarding Material Non Public Information (MNPI) about public companies. The SEC also pursued for the first time in 2021 an enforcement action involving selling insider tips on the dark web, also known as shadow trading.

Insider Trading Through Internal Controls

In 2022, look for the SEC to continue to leverage Section 13(b)(2)(B) of the Exchange Act, which requires that public companies devise and maintain internal accounting controls.

Under this new theory, the SEC claims that Section 13(b)(2)(B) imposes a specific requirement that companies devise and maintain appropriate internal accounting controls that are sufficient to provide reasonable assurance that a company’s securities trading would be executed in accordance with the board’s authorization, its corporate investment policy, and its securities trading policy.

The new theory was first employed in a settled action against Andeavor Corp. in 2020 and was again presented in a 2021 matter filed against Cavco Industries Inc. The theory presented in Cavco is that the company had an investment policy that imposed certain requirements on corporate investments and an insider trading policy that prohibited employees from purchasing securities, but that Cavco’s CEO caused the company to purchase the shares of four companies with which it was in ongoing direct merger or joint venture negotiations. According to the SEC, this was made possible because Cavco lacked appropriate controls to ensure that the investment policy and insider trading policy were being followed.

As the case against Cavco proceeds, the courts may be asked to provide clarity on the scope of Section 13(b)(2)(B) and its application to securities trading by public companies.

Shadow Trading on the Dark Web

In July 2021, the SEC brought its first enforcement action alleging insider trading on the dark web.

The dark web is a portion of the internet that is hidden from traditional web browsers where users buy and sell products anonymously, and often illegally. The dark web has long been thought to be a tool for unlawful insider trading, but it has not been the target of an SEC enforcement action until last year.

In 2021, the SEC brought an enforcement action against a dark web user who allegedly sold insider trading tips to investors. Over several years, Apostolos Trovias, who operated under the name “TheBull,” is alleged to have sold trading tips through more than 100 weekly and monthly subscriptions.

According to the SEC, Trovias wrongfully obtained and traded on or sold MNPI or fabricated MNPI to trick subscribers into believing he was selling inside information. In August, the SEC brought an enforcement action against Trovias based on a shadow method of insider trading wherein a person trades in the securities of Company A while in possession of MNPI about Company B, when Companies A and B are similarly situated.

Hope Lefeber: The Right Defense Attorney for Insider Trading Defense and Enforcement Actions

The SEC’s 2021 enforcement actions indicate a continued commitment to enhanced policing of insider trading. While many enforcement actions will continue to focus on traditional forms of insider trading, expect the SEC to continue to push the boundaries by presenting new theories of liability to target what it perceives to be unlawful conduct.

To combat these new theories of liability, people targeted in SEC investigations will need legal representation from a creative and tenacious advocate like Hope Lefeber. Ms. Lefeber began her career as an enforcement agent with the SEC, and she knows how the government prepares and prosecutes these cases. Today, she uses that experience to defend people who have been targeted by the SEC.

Ms. Lefeber has extensive experience representing people who have been accused of various financial crimes. She has routinely been named as a SuperLawyer and as one of the Top 100 Lawyers by the National Trial Lawyers Association. She is meticulously prepared, and will personally handle every detail of your case. Ms. Lefeber has a strong courtroom presence and a vast knowledge of federal criminal law and has won numerous acquittals on behalf of her clients, earning her a reputation as a fierce and tenacious defender of her client’s rights.

To learn more about Hope Lefeber, read testimonials from other people she has helped, then contact Ms. Lefeber today to schedule a confidential consultation to discuss your situation and how she can help.

Categories: Securities