In the US, criminal and civil penalties for insider trading vary depending on the statute violated and whether the violation was willful. This section focuses on penalties and sanctions for violations of Section 10b. In the UK, following an investigation and assuming the FCA believes there is sufficient evidence to justify action, the FCA may take criminal and/or civil action as appropriate.
In the US, corporations and entities may face fines up to $25,000,000 for securities fraud, while individuals may face fines up to $5,000,000.1 Individuals may also be subject to up to 20 years’ imprisonment and/or a bar from serving as an officer or a director of a public company “if the person’s conduct demonstrates unfitness to serve.”2
In the UK, a person convicted of insider dealing under the Criminal Justice Act 1993 is liable on summary conviction to a fine or imprisonment for a term of up to six months or to both. A person convicted of insider dealing is liable on conviction of indictment to a fine or imprisonment for up to seven years or to both.3 For more information on the factors the FCA will take into consideration when determining the appropriate level of a financial penalty, see Section 6.5 of the Decision Procedure and Penalties Manual here.
In the US, corporations and entities may face fines up to $1,000,000 or three times the profit gained or the loss avoided as a result of the violation, if the company knew or recklessly disregarded the fact that the controlled person was likely to engage in the acts constituting the insider trading violation and failed to take appropriate steps to prevent the acts before they occurred.4 Individuals may face fines of up to three times the profit gained or the loss avoided as a result of the unlawful transaction. Individuals may also be subject to an injunction and may be forced to disgorge any profits gained or losses that were avoided.5
Maximum fines per violation depend on the date of violation as civil monetary penalties are adjusted annually for inflation by the SEC. The DOJ and SEC may also bring a civil action to enjoin entities and individuals from violating the insider trading provisions.6
In addition to the penalties outlined above, persons who traded contemporaneously with, and on the other side of, an insider trading violator may sue the violator and the controlling persons of the violator to recover the profit gained or the loss avoided by the violator. For more see, [CROSS-REF to Private Rights of Action].
In the UK, the FCA has wide-ranging powers where there has been a contravention of MAR, including:
- suspending trading in the UK of financial instruments to which MAR applies;
- imposing unlimited fines or public censure;
- ordering an injunction to stop market abuse or to require a person to take steps to remedy market abuse;
- imposing prohibitions preventing a person from holding a managerial position in a UK investment firm;
- disgorging profits or losses avoided;
- preventing a UK firm from carrying out regulated activities or imposing limitations on its ability to carry out regulated activities; and
- applying to the courts for a restitution order or requiring the payment of compensation to a victim.7
1 See 15 USC § 78ff.
6 See 15 USC § 78u-3.
7 Regulation 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) (MAR), Recitals 71-73.