Securities Fraud / Insider Trading Defense Lawyer

A federal securities fraud or insider trading investigation rarely announces itself with an arrest. It usually surfaces as a document request, a call from an investigator, a trading inquiry routed from a market surveillance unit, or an invitation to give testimony under oath. By the time a person learns that they are a subject, records of their trades, messages, and calendar have often already been gathered from third parties who had no reason to say so. Charges under 15 U.S.C. § 78j(b) sit at the intersection of criminal law, civil enforcement, and employment consequences, and each of those tracks moves on its own schedule. The Eastern District of Virginia moves criminal cases quickly, which compresses the time available to investigate, retain consultants, and negotiate. Anyone who receives a subpoena, a preservation notice, or a request for a voluntary interview in a securities matter should speak with counsel before responding. Law Offices Of SRIS, P.C. defends federal securities matters from the earliest contact through charging, trial, and sentencing. Call (888) 437-7747 to request a consultation.

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What 15 U.S.C. § 78j(b) Prohibits

15 U.S.C. § 78j(b) makes it unlawful to use or employ any manipulative or deceptive device or contrivance in connection with the purchase or sale of a security, in contravention of the rules the Securities and Exchange Commission adopts for the protection of investors. The section itself does not list the conduct it forbids. It delegates that work to the Commission, so the operative prohibition lives in a rule promulgated under the section rather than in the section’s own text. That structure matters to a defense, because an indictment resting on § 78j(b) is really resting on the rule, and the rule’s language controls what the government must establish.

In practice the conduct charged falls into recognizable families. One is affirmative misstatement: a false or misleading statement of material fact made in connection with a securities transaction. Another is omission, which becomes actionable only where a duty to disclose exists. A third is manipulation of the market itself, such as trading designed to create a misleading appearance of activity or price. Insider trading is charged under the same provision, as a deceptive device rather than as a separately defined offense. Because the section covers so much ground, the first task in any defense is to pin the government down on which theory it is actually pursuing.

How Insider Trading Is Charged Under the Statute

Insider trading has no standalone federal definition. It is a body of court-developed doctrine built on top of § 78j(b), and it grew out of decisions rather than out of statutory drafting. Two theories dominate. Under the classical theory, a corporate insider who trades in the securities of the insider’s own company while holding material non-public information deceives the shareholders on the other side of the trade, because the insider owes them a duty arising from a relationship of trust and confidence. Under the misappropriation theory, a person who is not a corporate insider deceives the source of the information by secretly using it to trade, in breach of a duty owed to that source rather than to the counterparty.

Both theories extend to people who never traded. A person who passes information may be liable as a tipper, and the recipient may be liable as a tippee, but only where the disclosure itself breached a duty and the person who disclosed received some benefit from making it. The recipient must also have known, or been reckless in not knowing, of that breach. These are not technicalities. They are the elements on which many defenses turn, and they place real limits on how far a chain of communication can be prosecuted.

What Federal Prosecutors Must Prove

A criminal charge under § 78j(b) requires more than a bad trade or a regrettable email. The government must establish a manipulative or deceptive act. It must establish materiality, meaning that the information or misstatement would matter to a reasonable investor deciding how to act. It must establish that the conduct occurred in connection with the purchase or sale of a security. It must establish the jurisdictional element, which is the use of the mails, an instrumentality of interstate commerce, or a facility of a national securities exchange.

Above all it must establish state of mind. Civil enforcement can rest on a lower showing, but a criminal conviction requires that the defendant acted willfully, and that is the point at which many securities prosecutions are genuinely contestable. A trader may have been careless, may have misunderstood a policy, may have relied on advice, or may have acted on information already public in substance even if not in form. None of that is deceit. Because the mental element is proved almost entirely by inference from documents, timing, and communications, the defense work is documentary: reconstructing what the client actually knew, when, and from where, in a form a jury can follow.

Parallel Civil Enforcement and Criminal Exposure

Securities matters commonly run on two tracks at once. The Securities and Exchange Commission may open a civil investigation, issue subpoenas for documents and testimony, and ultimately seek remedies including an injunction, a bar from serving as an officer or director, the return of trading gains, and civil money penalties. The Department of Justice may pursue a criminal case on the same facts. The two proceedings are formally separate, and information often flows between them.

That structure creates traps an ordinary criminal case does not have. Testimony given to the Commission is under oath and can be used later. A person who invokes the Fifth Amendment in the civil case may face an adverse inference there, while a person who testifies may create a record that shapes the criminal exposure. Requests to pause the civil case while the criminal matter proceeds are common and are decided case by case. Employment consequences arrive on a third schedule entirely, because a regulated employer may have reporting duties of its own and may act long before either case resolves. Sequencing decisions made in the first weeks often matter more to the eventual outcome than anything that happens at trial.

How These Investigations Usually Begin

Most securities investigations start with data rather than with a complaint. Market surveillance systems flag trading that precedes an announcement, and the inquiry works outward from the account to the people connected to it. Others begin with an internal review at a public company, a whistleblower report, a counterparty dispute, or a referral from an agency examining unrelated conduct.

Early signals are easy to miss. A litigation hold notice from an employer, a request to preserve a phone, a colleague mentioning that investigators have called, a broker asking about the source of a trade idea: each is a reason to get advice, and none is a reason to start explaining. Northern Virginia adds its own pattern, because the region concentrates public companies, government contractors with reporting obligations, and employees who hold information about pending awards, acquisitions, and technical milestones. Information of that kind can be material long before anyone announces it. What a person does in the days after first contact, particularly with devices, messages, and colleagues, tends to shape the case far more than the trade itself.

How Mr. Sris and the Firm’s Of Counsel Attorneys Approach Securities Cases

Defense in this area is built on records, not on speeches. The first step is to establish precisely what the government has and where it came from: trading records, communications pulled from providers, employer systems, calendars, and the accounts of people who have already spoken. The second is to reconstruct the client’s own information environment, which frequently shows that the knowledge the government attributes to the client arrived later, came from a public source, or never reached the client at all.

From there the work divides along the theory. Where the theory is misstatement, the defense examines whether the statement was false, whether it was material, and whether it was made with the required state of mind. Where the theory is insider trading, the defense examines the duty said to have been breached, the source of the information, and, in tipping cases, whether any benefit passed at all. Where the theory is manipulation, the defense examines whether the trading had a legitimate economic purpose. Alongside that, counsel manages the civil track, the employment consequences, and any request for testimony, so that a step taken in one forum does not damage the position in another.

Frequently Asked Questions

Does a subpoena from the Securities and Exchange Commission mean criminal charges are coming?

No. Many civil securities investigations end without a criminal referral, and some end without any enforcement action at all. A subpoena does mean that an investigation exists, that documents are being gathered, and that anything said from this point forward will be measured against those documents later. The sound assumption is that a parallel criminal inquiry is possible, not that it is certain. Counsel can usually learn something about the posture from the scope of the requests and from who else has been contacted.

Should I speak to investigators to explain the trade?

That decision belongs with counsel, and it should be made after the records are reviewed rather than before. Investigators may ask questions without disclosing what they already hold, and an innocent but inaccurate account creates a second problem on top of the first: a false-statement exposure that did not exist before the interview. Declining to answer until you have advice is not evidence of anything. It is the ordinary handling of a matter in which the documents count for more than the explanation.

Can a person be prosecuted for insider trading without working at the company?

Yes. The misappropriation theory reaches people outside the company entirely, on the view that using confidential information to trade deceives whoever entrusted it. That can include an adviser, a contractor, a service provider, a family member, or an employee of a counterparty. What matters is the duty owed to the source of the information, not the person’s position at the issuer whose stock was traded. Whether such a duty existed, and whether the person knew of it, is often the central question in the case.

What makes information material?

Materiality turns on whether a reasonable investor would consider the information important in deciding whether to buy or sell. It is a practical test rather than a mechanical one, and it weighs the significance of the event against how likely the event was to happen at the time. Vague or speculative information is frequently not material, and information already absorbed by the market is not non-public merely because a person heard it informally. Both points are open to genuine dispute.

Can a person be charged who never bought or sold anything?

Yes. Liability can attach to the person who passed the information rather than to the person who traded, provided the disclosure itself breached a duty and the person who disclosed obtained some benefit from making it. The benefit does not have to be cash. Where no breach and no benefit can be shown, the chain fails at its first link, and that failure defeats the case against the recipients as well. Tipping cases are frequently weaker than they first appear.

What penalties does 15 U.S.C. § 78j(b) carry?

This page states no maximum term, no fine ceiling, and no other figure for this statute, because the firm publishes statutory numbers only where a verified source supplies them and no verified source for this provision is available to it. That is a deliberate limit rather than an oversight. In federal practice the advisory Sentencing Guidelines calculation and the statutory sentencing factors usually matter far more to the actual outcome than the statutory ceiling does. Ask counsel to confirm the current penalties against the text of the statute.

How does a criminal case interact with an employer’s internal investigation?

An employer conducting its own review is not a neutral party, and counsel retained by the company represents the company. Employees are often told that cooperation is required, and what they say can be turned over to the government without their consent. Employment protections, indemnification, and advancement of legal fees vary with the employment agreement and with company policy. Anyone asked to sit for an internal interview in a securities matter should obtain separate advice about that interview before it happens rather than afterward.

Working With Law Offices Of SRIS, P.C.

Securities cases reward early, document-driven work and punish improvisation. Law Offices Of SRIS, P.C. defends federal securities fraud and insider trading matters, from the first contact by investigators through the charging decision, motions, trial, and sentencing, and coordinates the criminal defense with the parallel civil proceeding and the employment consequences that run alongside it.

Mr. Sris, Owner and Founder of Law Offices Of SRIS, P.C., is a former prosecutor and is admitted in Virginia, Maryland, the District of Columbia, New Jersey, and New York. The firm has been practicing since 1997. Mr. Sris and the firm’s Of Counsel attorneys handle criminal defense matters across those jurisdictions, which matters in federal practice because a single investigation frequently reaches conduct, witnesses, and records in more than one state. Mr. Sris brings a background in accounting and information systems from George Mason University, applied to complex financial and technology-related cases.

The firm serves Northern Virginia from 1655 Fort Myer Dr, Suite 700, Room 719, Arlington, VA 22209 and central Virginia from 7400 Beaufont Springs Drive, Suite 300, Room 395, Richmond, VA 23225. By appointment. Call (888) 437-7747 to schedule. Request a consultation. Reach our location at (888) 437-7747.

This page provides general information about federal securities fraud and insider trading charges under 15 U.S.C. § 78j(b) and does not create an attorney-client relationship. Case results depend on a variety of factors unique to each case. Results may vary.

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A securities fraud insider trading case is one part of fraud & financial crimes work, and our page on bank fraud defence covers the wider process.