U.S. Court Ruling Challenges SEC's Circumstantial Insider Trading Evidence

Insider trading allegations are often challenging to pursue to successful conclusion by regulators and prosecutors. The degree of proof usually requires regulators to rely on circumstantial evidence, leaving adjudicators to determine whether it is sufficient to ground a finding of unlawful conduct or activity. On December 13, 2021, the United States Securities and Exchange Commission (SEC) experienced a setback in its approach to relying on circumstantial evidence of "suspicious" trading to convince an adjudicator to draw the inference of a securities violation. A federal judge in Virginia found that the regulator failed to offer persuasive circumstantial evidence to prove that a mortgage banker traded on illicit tips from his brother-in-law about merger negotiations at his information technology advisory company.