Insider Trading Penalties
Insider trading is subject to a maximum civil penalty of treble damages (three times the amount of the benefit obtained by the violation). Benefit obtained means gain or loss avoided. The maximum civil penalty that can be imposed on a firm when an employee engages in insider trading is the greater of $1,000,000 or three times the amount of the profit gained or loss avoided as a result of the violation.
For more severe instances, the Justice Department may bring criminal charges, carrying maximum penalties of $5 million for each willful violation and/or 20 years in prison. Firms may be fined up to $25 million.
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Maximum Penalties for Insider Trading |
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Individual |
Firm |
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Civil Penalties |
Three times the amount of the profit gained or loss avoided |
Greater of $1,000,000 or three times the amount of the profit gained or loss avoided |
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Criminal Penalties |
$5 million and/or 20 years in prison |
$25 million |
Liability of controlling persons. The Insider Trading and Securities Fraud Enforcement Act directs managers to create and enforce written policies and procedures designed to prevent the misuse of material, nonpublic information (insider trading). These policies must include the review of employee and proprietary trading, the supervision of interdepartmental communications by the firm’s compliance department, and procedures to review proprietary trading when the firm is in possession of material, non-public information. The firm must maintain its analyses and investigations of employees and proprietary trading.
Employees must be made aware of the written policies and procedures upon hiring, at which time employees should make a signe