1. Rebuild the Insider Trading Timeline First
When a trade follows a deal discussion, earnings update, or other market event, the timeline usually matters more than a broad denial. Put information access, calls, messages, orders, and public announcements in the same sequence.
Test Access, Contact, and Trading Together
A close trading date can attract scrutiny, but timing alone does not establish insider trading. The surrounding records may show how the investment decision developed and whether the alleged information affected it. It can also show who knew what, when, and why the trade made sense before the news became public.
- Identify when the person could access the disputed information.
- Map calls, texts, emails, and meetings around the trade.
- Compare order timing with public news and market events.
- Preserve research notes and prior trading records.
An Insider Trading review can place those facts within the trading or tipping theory.
2. Test Adviser Performance Claims against Source Records
Performance ads can create risk when figures, fees, or disclosures do not match source records. Rule 206(4)-1 governs ads by SEC-registered investment advisers.
Trace Each Material Claim Back to the Data
Start with the figures and disclosures used when the material went out. Check whether source records support what clients were shown.
- Match reported results to account and portfolio records.
- Check gross and net performance where the rule requires both.
- Review drafts, approvals, disclosures, and client messages.
- Preserve records supporting the calculation method.
3. Separate Firm Supervision from One Employee Trade
A supervision inquiry asks how the firm's controls worked, not only whether one trade looks unusual. FINRA Rule 3110 governs member supervisory systems and procedures.
Compare Written Procedures with Daily Practice
Rule 3110 also addresses trade review for possible insider trading or manipulation. Alerts, chats, and review logs can show how the process worked.
- Find the procedure tied to the activity under review.
- Trace alerts and exceptions through the review path.
- Compare assigned duties with the steps staff took.
- Preserve trade, chat, and risk-system records.
See SEC Investigations for federal requests, testimony, and records.
4. Examine Private Fund Decisions in Full Context
A private fund dispute may combine securities, disclosure, contract, and governance issues. A loss alone does not show a misstatement or action outside agreed authority.
Trace Authority, Disclosure, and Investment Decisions
Fund documents can show strategy and manager discretion. Earlier records may explain conflicts, changes, and investor disclosures.
- Review offering, subscription, and governing documents.
- Compare investments with stated strategy and authority.
- Check investor notices, minutes, and conflict disclosures.
- Separate later losses from facts known when decisions were made.
5. Review Research Conflicts before Inferring Intent
Research issues may involve independence, banking contacts, compensation, trading, and disclosure. FINRA Rule 2241 addresses member-firm research conflicts.
Follow the Recommendation Back to Its Sources
The record should show how the analyst reached the view and who joined the review. Notes, drafts, pay records, and distribution history add context.
- Review research notes and valuation support.
- Trace contacts with banking and trading personnel.
- Check compensation terms and conflict disclosures.
- Review pre-release checks and distribution records.
A Securities Enforcement review can place those records within enforcement.
6. Separate a Blackout Breach from Insider Trading
A blackout-period trade may breach firm policy without proving federal insider trading. Liability still depends on the legal theory and facts involving information, duty, and trading.
Build the Record Around the Trading Decision
Preclearance files and policies can show the controls and what the employee disclosed. Read them with access records and the reason for the trade.
- Confirm the policy in effect on the trade date.
- Review preclearance forms, attestations, and messages.
- Identify what nonpublic information the employee could access.
- Check whether a Rule 10b5-1 arrangement may be relevant.
7. Keep Federal, Finra, and State Tracks Separate
The same facts can draw several reviews, but the legal tracks differ. SEC civil, federal criminal, FINRA, and state tracks use different authority.
Match Each Record to the Proceeding
| Track | Primary Question | Records to Review |
|---|---|---|
| SEC civil | Federal securities-law compliance | Trades, messages, disclosures |
| Federal criminal | Elements of the charged offense | Timeline, messages, source records |
| FINRA | Member and associated-person rules | Procedures, alerts, review logs |
| State | Article 23-A issues | Trades, statements, offering records |
General Business Law § 352 gives the attorney general investigative authority over suspected securities fraud. Section 352-c separately prohibits listed fraudulent practices and false statements. Neither replaces federal elements.
- Identify which authority is requesting records or testimony.
- Separate civil, criminal, FINRA, and state requests.
- Keep document preservation and facts aligned.
- Track testimony and written responses across proceedings.
A White Collar Investigations review may be relevant when the same facts also create criminal exposure.
8. Frequently Asked Questions
Does unusual trade timing prove insider trading?
No. Timing can be evidence, but the analysis also looks at access, materiality, nonpublic status, messages, the trade decision, and the legal theory.
Can a firm policy breach become evidence in an SEC case?
Yes. Policies, attestations, and preclearance records may be relevant. A policy breach alone does not establish every element of a federal securities violation.
Can SEC and criminal investigations involve the same trades?
Yes. Regulators and prosecutors may examine overlapping conduct. Their procedures and proof requirements differ, so testimony and document responses should account for both tracks.
Does a Rule 10b5-1 plan automatically defeat an insider trading claim?
No. Rule 10b5-1 provides an affirmative defense only when its conditions are met. Adoption, changes, timing, good faith, and knowledge may require review.
9. Build the Defense from the Existing Record
Securities cases often turn on records created before an inquiry begins. SJKP's attorneys can review trades, messages, disclosures, policies, and supervision together. A US securities law violation defense attorney in Manhattan can assess where the record supports or weakens the government's theory.
24 Aug, 2026
