How is insider trading prosecuted?

In Washington, insider trading is prosecuted under state and federal laws. Insider trading involves the illegal purchase or sale of securities based on material, nonpublic information about the security, company, or the stock exchange. When an individual or entity with access to confidential information uses this information to gain an advantage over other investors, they are engaging in insider trading. Insider trading is a form of white-collar crime and is illegal in most jurisdictions. The US Securities and Exchange Commission (SEC) is the primary enforcement authority for insider trading offenses. The SEC can investigate possible violations, issue subpoenas and investigate potential insider trading violations. The SEC will review all evidence available to determine if the activity is clearly linked to insider trading. If sufficient evidence is found, the SEC will file civil charges in federal court. If a defendant is found to have violated the securities law, they may be subject to civil penalties including fines, disgorgement of profits, and/or a court-ordered bar from the securities industry or from serving as a director or officer of a public company. In some cases, the SEC may refer matters to the Department of Justice for criminal prosecution. If found guilty, criminal penalties for insider trading include monetary fines, jail time, and the possibility of being barred from the securities industry. It is important to note that even with intent to commit insider trading, one may not be guilty of criminal or civil offenses if they can prove a valid defense. For instance, a lack of scienter (intent) to commit a wrong can be raised as a defense.

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