Justice Department To Investigate Potentially-Illegal Trading Tactic
For as long as the stock market has existed, there have been people who strive to discover new and innovative ways to use the market to generate income. However, while most investment operations are fully above-board, it can be surprisingly easy to cross the line into
This is especially true when new technologies come into play. To that end, Attorney General Eric Holder announced recently that the U.S. Department of Justice will be launching an investigation into a practice known as "high-frequency trading." The agency is concerned that the practice may amount to a form of insider training.
In high-frequency trading, investors use powerful computers and high-speed Internet connections to jump in front of other investors making similar trades. Some also garner quote information about the trades they are jumping in front of, such that a substantial profit is practically guaranteed.
The link between insider trading and high-frequency trading
In itself, there is nothing illegal about trading with an especially fast computer. The legal risk comes when the people making the trades have access to information that is not available to other investors.
Typically,insider trading occurs when investors capitalize on market intelligence that is secret or has not yet been made publicly available. For example, insider trading might occur when a trade is made based on the insider knowledge that a company will make a major announcement the following day. Or, perhaps someone might know that a high-profile investor is about to make a trade that will cause a company's stock price to skyrocket, and uses that knowledge to purchase the stock while it is still at a comparatively low price.
High-frequency trading is somewhat different, in that there is not one specific piece of market intelligence at issue. Instead, investors use their high-powered computers to access proprietary data feeds that display stock price information before the public can access it. Once they know how the market will move, high-frequency investors can use their technological advantages to cut in front of other transactions.
Whether this practice should be considered illegal is the subject of great debate. Some see no difference between insider trading and high-frequency trading, and argue that any trade based on non-public information should be considered suspect. Others, however, feel that gaps in technological access are a fact of life, and that high-frequency investors should not be punished for trying to use technology to their advantage.
Seeking experienced legal help
At this point, it is still too early to tell how the Department of Justice will come down on the issue. However, there is one thing that is certain: anyone who is under federal or state investigation for potentially illegal investment actions would be wise to speak with an experienced white-collar crime attorney right away.
Most people do not realize how significant the penalties for insider trading and other white-collar crimes can be. And, it is not just prison time and substantial fines that are at issue; a conviction can make it nearly impossible to secure employment or professional licensure once a sentence has been served.
If you or a loved one has been accused of insider trading or investment fraud, now is not the time to gamble with your future. An attorney can help protect your rights, your assets and your career.