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Investigations and Prosecutions

White-collar crime refers to an offense perpetrated by an individual of decency and high social rank in the line of his profession. Irrespective of the definition of white-collar offense, this crime is extensively recognized to bring incredible pecuniary, physical, and social mischief. Even though the full amount of money lost through white-collar crime yearly cannot be ascertained with accuracy, it is, however, evident that it surpasses the losses caused by normal street crime. For instance, the Federal Bureau of Investigation ascertained that the usual property crimes like larceny, housebreak, and cyber theft to mention a few amounted to an approximated $19 billion in losses in 2007 (Friedrichs, 2009). By contrast, the estimated losses because of white-collar crime amount to about $200 billion annually in the United States (Friedrichs, 2009).

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The Federal laws of the United States explain insider trading as the trading of a firm’s securities by persons with access to classified and non-public information concerning the corporation. Overall, there are a number of ways in which sections 10 (b) and rule 10b-5 may be infringed for an undertaking to amount to insider trading (Siegel, 2012). The first entails the traditional theory advocated in Chiarella where the dealer, for instance, a company insider, has an association of reliance and confidence to the party with whom he does business (Gottschalk, 2009). In these conditions, dealing with sensitive, confidential information without its revelation would violate the fiduciary obligation reposed on the other side of the business. Additionally, when a person misappropriates material information while trading without disclosing this to trade securities, this also results in the violation of the rule 10b-5. Finally, the individual conveying sensitive, confidential information to another for business functions can breach rule 10b-5 if that revelation violates a duty and is for an inappropriate intention. If the receiver of this confidential information recognizes the infringement and works on the information, the tippee is deemed to have violated the rule 10b-5 as well (Friedrichs, 2009). Based on the above language of the federal statute, it is apparent that Martha Stewart could not be charged with insider trading as she had violated none of the above statute stipulations.

The key challenge in any debate of insider trading in the United States is the very low number of insider trading trials, which has made it impractical to present a broad explanation of the prosecution practice as it works in the United States. A major aspect in insider trading is that the injured party is frequently uninformed that he has lost, and the law agencies are hampered by fewer complaints on this category of crime. Another key challenge of investigating and prosecuting insider trading is the problem of detecting its occurrence. On receiving grievances and information regarding insider trading dealings, the regulators appear to pursue a responsive approach. A thorough, pro-active enforcement approach seems complicated due to the limitation of resources encountered by the enforcers. Efficient investigation of insider trading necessitates trustworthy informers. In Dirks v. SEC, the judges established a key decision in the United States on the information to be used in the investigation of insider trading (Gottschalk, 2009). In this case, the Supreme Court adjudged that a prosecutor can incriminate tip receivers with insider trading, legal responsibility if the tippee had grounds to trust that the information’s revelation infringed another’s fiduciary responsibility and if the receiver individually benefitted from acting upon the information.

The key hindrances encountered by the personnel of agency officials in prosecuting insider trading are the evidentiary challenges. The paucity of cases is a deterrent because there are limited examples and, the courts (especially the subordinate courts) appear to take a conventional strategy as a result (Siegel, 2012). The challenge of proof is another problem in prosecuting insider trading cases. In exploring the challenges of proof in insider trading trials, two concerns constantly surface. The first challenge is the expected concern of getting witnesses who are ready to witness. The second challenge is the ascertainment that the information offered to the dealer was price responsive and possible to influence the price of the stock significantly. The judges in the case Tellabs, Inc. v. Makor Issues & Rights, ascertained the basic attribute to be inferred when suing for fraud (Gill & Scott, 2008). The court held that, for a person to allege fraud there should have enough facts from which to obtain a solid conclusion that the defendant took action with the needed mental state.

In a nutshell, the majority of enforcement agencies have constantly ignored cases about insider trading. Attributable to the rise of other more pressing criminal issues, investigation of insider trading cases has not been offered much emphasis. Lastly, the investigation and prosecution of insider trading faces the lack of regulatory cooperation due to limited regulatory resources (Gill & Scott, 2008). Considering the way in which regulatory resources are sparsely stretched, there is no room for extensive collaboration and assistance between the regulatory agencies and the stock exchange firms concerning insider trading inquiries and investigations. For the majority of traders, the initiative in greater collaboration had substantial appeal. However, cooperation can only be possible if privilege and confidentiality between client and trader go unchallenged.


Friedrichs, D. (2009). Trusted criminals: White collar crime in contemporary society. New York: Cengage Learning.

Gill, J., & Scott, M. (2008). The legal environment and white collar-crime. Austin, Texas: Association of Fraud Examiners.

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Gottschalk, P. (2009). Policing financial crime: Intelligence strategy implementation. New York: Universal-Publishers.

Siegel, L. (2012). Criminology: Theories, patterns, and typologies. New York: Cengage Learning.

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