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The Practice Of Law Is A Relationship Business

Mortgage broker defeats SEC: 3 things to learn

by | Jan 12, 2022 | Securities Litigation

Insider trading cases generally involve using confidential information to help guide decisions to trade on the stock exchange. This practice is illegal and can come with serious penalties like monetary fees and even the potential for imprisonment. We have seen everyone from brokers to Martha Stewart go up against the United States Securities and Exchange Commission (SEC) in an attempt to fight allegations of insider trading — and many lose.

A recent case provides an example of how to win

The case involves a mortgage broker who made “bullish” trades just before an acquisition deal. The issue? The mortgage broker’s brother-in-law was a corporate accountant at one of the businesses involved in the deal. Upon quick review, the SEC believed they had a strong case. The presence of insider trading seemed clear. The problem? They did not have clear evidence of communication between the brother-in-law and the mortgage broker to show inside information was exchanged.

As a result, a federal judge dismissed the case stating the feds failed to establish that the broker truly negotiated illicit tips.

Three take-away lessons from this case include:

  • The SEC is not infallible. You may feel intimidated going up against one of the largest agencies in the federal government, but they are not indestructible. Without proper evidence, the court will kick out their attempt to move forward with a case.
  • Evidence is important. First, it is important for the SEC to have evidence to support their allegations. Without proper evidence, as was the problem in this case, the court will dismiss the case.
  • Sometimes it is best to fight. The SEC has a strong winning record once it heads to court, but there are cases when fighting back is the right choice — as was the situation here.

The case may support concerns the SEC relies too heavily on statistical evidence. Although the timing of the trades may seem suspicious, a suspect trade is not always an illegal one. Even when the situation does not look good, the accused could have a strong case against the SEC. This makes it even more important to discuss when to push forward with a case and when to discuss other resolution options.

Commercial LitigationSecurities LitigationMortgage broker defeats SEC: 3 things to learn