3.10 Insider Trading Rules & Penalties
The Insider Trading and Securities Fraud Enforcement Act of 1988 imposes severe civil and criminal penalties for trading on illicit inside information.
Key FINRA Exam Takeaways
- Material Non-Public Information (MNPI): Any information not available to the public that a reasonable investor would consider important.
- Liability: BOTH the tipper (who passes the tip) and the tippee (who trades on it) are legally liable if trading occurs.
- Civil Penalties: Up to three times the profits gained or losses avoided (treble damages).
- Criminal Penalties: Up to $5,000,000 fine and up to 20 years in federal prison for individuals.
- Bounty Program: Whistleblowers can receive 10% to 30% of recovered financial sanctions.
Interactive Knowledge Checkpoint • Section 3.10
Under federal securities law, what is the maximum civil penalty that may be levied against an individual who engages in illegal insider trading?