According to the Securities and Exchange Commission‘s 2018 Annual Report, 262 tips were received from whistleblowers regarding insider trading and resulted in a total of 56 charges throughout the year. As one of the SEC’s most successful years in combating insider trading, it is evident that the combination of whistleblower tips and modern technology are the key to securing the integrity of the securities market.
What is Insider Trading?
According to the SEC’s Investor.gov, “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis 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.”
So, who can be prosecuted for insider trading? In truth, there are several ways to partake in and be convicted of insider trading. Essentially, any individual who acted on or provided tipped, non-public information that resulted in unfair insight into the market can be charged with insider trading. This also includes corporate employees who traded stocks after learning of confidential business developments, employees of banking and brokerage firms that traded stocks using information gathered from the companies they serviced, and political consultants or government employees that traded based on information that was not disclosed to the public.
When insider trading occurs, the integrity of the securities market is greatly compromised and creates an unfair platform of trading for unsuspecting investors. For this reason, the Securities and Exchange Commission considers insider trading cases to be one of their top priorities.
A Combined Effort to Combat Insider Trading
In 2018, the SEC reported that nearly 10% of all stand-alone cases involved insider trading. In order to continue to combat insider trading, the SEC relies on a variety of practices and technologies. The SEC’s first line of defense against insider trading are the whistleblowers that come forward with tips on suspected insider trading. In fact, the SEC has reported that since 2015, they have received an average of 257 whistleblower tips regarding insider trading each year. These tips have the potential to result in millions of dollars of awarded funds under the SEC Whistleblower Program. In fact, the SEC reports that over $300 million of whistleblower rewards have been issued since 2011.
With today’s advanced technology, the SEC can analyze whistleblower tips with greater accuracy and efficiency than ever before, and the technology will only continue to advance. Between new technology, whistleblower tips, and the efforts of the SEC, combating insider trading is becoming more and more streamlined. And for the distant future, it seems that whistleblower tips will remain the SEC’s most important weapon in protecting and restoring the integrity of the securities market.
The SEC Whistleblower Program
What exactly is the SEC Whistleblower Program? In short, the SEC Whistleblower Program was a system created by Congress to provide a safe platform where individuals could come forward with knowledge of related violations and receive a monetary reward if applicable. Under the SEC Whistleblower Program, eligible individuals can receive between 10%-30% of the monetary sanctions of the resulting actions. What kind of awards does this program result in? Here are a few of the largest awards issued in 2018, according to the SEC:
- March 19th, 2018 – $50 Million
- March 19th, 2018 – $33 Million
- September 6th, 2018 – $15 Million
- September 6th, 2018 – $39 Million
This program also works to protect the whistleblowers who come forward with information by prohibiting employee retaliation. To learn more about the SEC Whistleblower Program, check out a few frequently asked questions at the Office of The Whistleblower.
2018 Insider Trading Charges
With the help of 262 insider trading tips received from whistleblowers across the country, the SEC was able to charge a total of 56 individuals with insider trading, according to their 2018 Annual Report. These charges included a U.S. Congressman, Christopher Collins, as well as a former NFL player, Mychael Kendricks. Additionally, a former manager and a former chief information officer of Equifax, Inc. were both charged with trading stocks prior to their announcement of the well-known 2017 breach of exposed social security numbers. Without the tips received from whistleblowers, it is likely that very few of these charges would have come to fruition. However, the latest Annual Report by the SEC proved that 2018 was one of the most successful years for the SEC in terms of charges for insider trading and other forms of fraud.
In the future, it seems certain that whistleblowers will remain the SEC’s first line of defense against fraudulent activities like insider trading. And as technology only continues to involve, we can only expect the investigative process of the SEC to become more and more efficient in analyzing whistleblower tips and developing strong cases against the individuals that choose to participate in fraudulent activities. Going forward, it is more important than ever that whistleblowers remain supported and encouraged to come forward with the very tips that make these cases possible.