Insider Trading Defense
Scott Armstrong supervised insider trading prosecutions as an Assistant Chief at DOJ’s Fraud Section, including a case that resulted in the conviction of four defendants for trading on material nonpublic information about a $3.2 billion merger. Drew Bradylyons served as Chief of Financial Crimes at the Eastern District of Virginia. They now defend executives, traders, and professionals facing insider trading charges in federal courts nationwide.
Scott Armstrong — Former DOJ Fraud Section Assistant Chief
Scott Armstrong served for nearly a decade at the Criminal Division’s Fraud Section, including as an Assistant Chief in the Market Integrity and Major Frauds Unit. Scott supervised insider trading investigations and prosecutions at DOJ. He tried 16 federal jury trials in complex white-collar cases. He understands how the government builds insider trading cases because he supervised and oversaw them. He now uses that knowledge to defend against them.
Insider Trading Case Involving a $3.2 Billion Merger
Scott Armstrong supervised a multi-defendant insider trading prosecution at DOJ’s Fraud Section that resulted in the conviction of four individuals. The case involved a corporate board director who obtained material nonpublic information about a $3.2 billion pharmaceutical merger and tipped others who traded on that information. The defendants collectively profited more than $600,000. A federal jury convicted all four defendants of securities fraud and insider trading. The case demonstrates the type of tipping chain that DOJ and the SEC target most aggressively: a corporate insider with access to deal information who shares it with family, friends, and associates who trade on it.
Drew Bradylyons — EDVA Financial Crimes & Parallel Proceedings
Drew Bradylyons served as Chief of the Financial Crimes and Public Corruption Unit at the U.S. Attorney’s Office for the Eastern District of Virginia, one of the most active federal prosecution offices in the country. EDVA prosecutes a significant volume of insider trading cases, including cases involving government employees, defense contractors, and individuals with access to sensitive economic data. At EDVA, Drew supervised complex financial fraud cases and coordinated parallel criminal and civil enforcement matters. Insider trading cases almost always generate parallel SEC civil enforcement actions alongside criminal charges. Drew’s experience navigating that dynamic protects clients from making a misstep in one proceeding that becomes a liability in the other. Drew previously served at DOJ’s Fraud Section, where he supervised complex financial fraud investigations and prosecutions nationwide.
Insider trading is the single highest-volume enforcement area for both the SEC and DOJ’s Criminal Division. SEC Chairman Paul Atkins and Enforcement Director Margaret Ryan have both identified insider trading as a top priority for 2026. Nearly one-third of SEC enforcement actions in fiscal year 2025 focused on offering fraud or insider trading. DOJ’s May 2025 White Collar Enforcement Plan identified “fraud that victimizes U.S. investors” as a high-impact enforcement area. Insider trading sits at the center of that priority.
The enforcement pipeline is deep. The SEC and DOJ brought parallel insider trading cases in 2025 and early 2026 involving pharmaceutical company insiders, consultants who traded on clinical trial data, corporate directors who tipped family members ahead of mergers, investment bankers who passed deal information through tipping chains, and international trading rings generating tens of millions of dollars in illicit profits. The life sciences and pharmaceutical sectors are the current hotspot. Mergers, acquisitions, clinical trial results, and FDA decisions generate the material nonpublic information that drives these cases.
The penalties are severe. Insider trading under Section 10(b) of the Securities Exchange Act and Rule 10b-5 carries up to 20 years in prison per count. Securities fraud under 18 U.S.C. § 1348 carries up to 25 years. The SEC seeks disgorgement of profits, civil monetary penalties up to three times the profit gained or loss avoided, and permanent injunctions. Individuals also face industry bars, which can end careers in financial services permanently.
Classical Insider Trading
Classical insider trading occurs when a corporate insider, such as an officer, director, or employee, trades in the company’s securities while in possession of material nonpublic information (MNPI) about the company. The duty to disclose or abstain from trading arises from the insider’s fiduciary relationship with the company and its shareholders. The government charges classical insider trading under Section 10(b) and Rule 10b-5, and under Section 14(e) and Rule 14e-3 when the trading involves a tender offer.
Tipper-Tippee Liability
A tipper is a person who discloses MNPI to another person in breach of a duty of trust and confidence. The tippee is the person who receives the information and trades on it. The tippee’s liability depends on whether the tipper received a personal benefit from the disclosure and whether the tippee knew or should have known that the information was disclosed in breach of a duty. The Supreme Court’s decisions in Dirks v. SEC and Salman v. United States define the personal benefit requirement. Recent enforcement activity has targeted multi-level tipping chains in which information passes through several intermediaries before trading occurs.
Misappropriation Theory
The misappropriation theory, established by the Supreme Court in United States v. O’Hagan, applies to individuals who are not corporate insiders but who misappropriate MNPI from a source to whom they owe a duty of trust and confidence. This theory reaches lawyers, accountants, consultants, investment bankers, and other professionals who obtain MNPI through their professional relationships and trade on it. The SEC and DOJ use the misappropriation theory extensively in cases involving consultants who access clinical trial data, advisers with deal information, and professionals who learn of pending mergers through their work.
Life Sciences and Pharmaceutical Insider Trading
The life sciences sector is the current hotspot for insider trading enforcement. Clinical trial results, FDA approval decisions, and merger activity generate MNPI that is exceptionally valuable and exceptionally well-documented. The SEC and DOJ have brought parallel criminal and civil cases against biostatistical consultants who traded on clinical trial data, pharmaceutical company directors who tipped family members ahead of merger announcements, and investment bankers who shared deal information through tipping networks. One recent case involved nine potential acquisitions and over $41 million in alleged illicit profits.
Rule 10b5-1 Plan Violations
Rule 10b5-1 provides an affirmative defense for executives who establish written trading plans when they are not in possession of MNPI and then execute trades according to the plan. The SEC adopted significant amendments to Rule 10b5-1 that became effective in 2023, adding cooling-off periods, limiting the use of multiple overlapping plans, and requiring enhanced disclosures. The government investigates executives who adopt or modify 10b5-1 plans while in possession of MNPI, execute single-trade plans shortly before material announcements, or structure plans to trade around anticipated corporate events.
Government Employee and Political Intelligence Insider Trading
Government employees who trade on MNPI obtained through their official duties face criminal prosecution under the misappropriation theory. This includes federal employees with access to regulatory decisions, economic data, policy announcements, and enforcement actions. The STOCK Act affirmed that members of Congress and federal employees owe a duty of trust and confidence to the United States that prohibits trading on MNPI obtained through their public service. Political intelligence consultants who gather and monetize government information are also targets of enforcement activity.
Insider trading cases are built on circumstantial evidence. Direct evidence of a tip is rare. The government constructs its case by proving that the insider had access to MNPI, that the defendant had a relationship with the insider, that the defendant traded in a pattern that is consistent with access to MNPI, and that there is no legitimate alternative explanation for the trading. The government relies on several categories of evidence to build this circumstantial case.
Trading Pattern Analysis
The SEC and DOJ use sophisticated data analytics to identify suspicious trading patterns. They examine the timing of trades relative to material announcements, the size of positions relative to the defendant’s normal trading history, the use of options to maximize leverage, the concentration of purchases in a single security, and the absence of any legitimate research or analysis that would explain the trading decision. The SEC’s Market Abuse Unit and FINRA’s market surveillance systems flag unusual trading activity around corporate announcements and refer cases for investigation.
Communications Evidence
The government subpoenas phone records, text messages, emails, and messaging platform data to establish contact between the tipper and tippee around the time of the trades. A phone call between a corporate insider and a trader on the day before the trader opens a large position in the insider’s company is powerful circumstantial evidence. The government does not need to prove the content of the communication. The timing and pattern of contact, combined with the trading, can be sufficient. Bloomberg Terminal chat, Slack, WhatsApp, Signal, and other messaging platforms are all targets of government subpoenas.
Cooperating Witnesses
Federal prosecutors use cooperating witnesses to prove the tip. In tipping chain cases, the government flips one member of the chain and uses their testimony to prove the flow of information and the personal benefit to the tipper. Cooperators testify under cooperation agreements that give them powerful incentives to testify in a way favorable to the government. Effective cross-examination of cooperators is one of the most important skills in an insider trading trial.
Defense counsel must understand these evidence streams and how to challenge them. Scott Armstrong supervised insider trading prosecutions at DOJ’s Fraud Section. He knows how the government assembles the mosaic of circumstantial evidence to prove a case without direct evidence of the tip. He now uses that knowledge to deconstruct the government’s narrative and expose the weaknesses in its proof.
Challenging the Tip
The government must prove that MNPI was communicated in breach of a duty of trust and confidence. For the alleged tipper, the defense challenges whether a duty existed, whether the information was actually disclosed, and whether the tipper received the personal benefit required under Dirks and Salman. For the alleged tippee, the defense challenges whether the defendant knew or had reason to know that the information came from an insider source, whether the tipper breached a duty, and whether any personal benefit flowed to the tipper. In multi-level tipping chains, every link must be proven. A break at any point defeats the case against downstream tippees.
Attacking the MNPI Analysis
Not all nonpublic information is material. The defense challenges the government’s characterization of the information as both material and nonpublic at the time of the trade. Information may have been partially public, widely rumored, or available through legitimate channels such as industry conferences, analyst reports, or public filings. The materiality analysis requires proof that a reasonable investor would have considered the information important. The defense presents evidence that the information was speculative, preliminary, or insufficiently concrete to be material at the time the defendant traded.
Independent Research & Public Information
If the defendant can demonstrate that the trading decision was based on independent research, publicly available information, or a pre-existing investment thesis, the government’s circumstantial case weakens significantly. The defense presents the defendant’s research, analysis, trading history, and investment strategy to show that the trade was consistent with legitimate decision-making, not inside information.
Rule 10b5-1 Affirmative Defense
If the defendant traded pursuant to a valid Rule 10b5-1 plan that was adopted in good faith when the defendant was not in possession of MNPI, the plan provides an affirmative defense to insider trading charges. The defense must demonstrate that the plan was established before the defendant learned the MNPI, that the plan specified the amount, price, and date of trades, and that the defendant did not deviate from or influence the plan after adoption.
Insider trading cases almost always involve parallel proceedings. DOJ brings criminal charges. The SEC brings civil enforcement actions. FINRA brings regulatory actions against registered persons. State attorneys general increasingly bring state-law insider trading cases under state securities statutes, including the New York Martin Act. All of these proceedings can run simultaneously. Statements made in one proceeding can be used in another.
The SEC brings civil claims under Section 10(b) and Rule 10b-5, seeking disgorgement, civil penalties up to three times the profit gained or loss avoided under the Insider Trading Sanctions Act, and permanent injunctions. Testimony provided to the SEC under oath in a civil investigation can be used by DOJ in a criminal prosecution. FINRA can compel testimony from registered persons under FINRA Rule 8210, and that testimony can be shared with the SEC and DOJ.
Drew Bradylyons served as Chief of the Financial Crimes and Public Corruption Unit at the U.S. Attorney’s Office for the Eastern District of Virginia. At EDVA, Drew coordinated parallel criminal and civil enforcement matters and understands firsthand how DOJ, the SEC, and state regulators share information and pursue individuals across parallel proceedings. That experience is critical in insider trading cases, where a misstep in one proceeding can be devastating in the other.
Scott Armstrong served as an Assistant Chief in the Fraud Section’s Market Integrity and Major Frauds Unit, where he coordinated regularly with FINRA and the SEC on criminal insider trading investigations. That coordination gave Scott a firsthand understanding of how each agency gathers evidence, shares information, and builds cases across parallel tracks. He now uses that knowledge on the defense side. Scott defends individuals facing FINRA inquiries and disciplinary proceedings, SEC investigations and enforcement actions, and DOJ criminal prosecutions. He understands the risks at each stage and across each agency, and he protects clients from the specific dangers that arise when multiple regulators and prosecutors pursue the same individual at the same time.
Scott Armstrong supervised insider trading prosecutions as an Assistant Chief in the Fraud Section’s Market Integrity and Major Frauds Unit. He supervised a multi-defendant insider trading case involving a $3.2 billion pharmaceutical merger that resulted in the conviction of four individuals. Scott tried 16 federal jury trials in complex white-collar fraud cases. He understands how DOJ builds insider trading cases, how the government assembles circumstantial evidence to prove the tip, and how to challenge that evidence at every stage.
Drew Bradylyons served as Chief of the Financial Crimes and Public Corruption Unit at the U.S. Attorney’s Office for the Eastern District of Virginia. EDVA is one of the most active districts in the country for insider trading prosecutions, including cases involving government employees and defense contractors with access to sensitive information. Drew supervised complex financial fraud cases and coordinated parallel criminal and civil enforcement actions. His experience navigating multi-agency investigations and parallel proceedings is directly relevant to insider trading cases, where DOJ, the SEC, FINRA, and state regulators often pursue the same individual simultaneously.
Armstrong & Bradylyons PLLC defends executives, directors, traders, consultants, and financial professionals facing insider trading charges in federal courts nationwide, including the Southern District of New York, the Eastern District of New York, the District of New Jersey, the Eastern District of Virginia, the District of Massachusetts, the Southern District of Florida, and every other federal district where these cases are prosecuted. The firm also handles securities fraud defense, securities market manipulation defense, and broader white-collar defense matters.
What Is Insider Trading?
Insider trading is the purchase or sale of a security while in possession of material nonpublic information (MNPI) in violation of a duty of trust and confidence. It is prohibited by Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. Insider trading can be charged civilly by the SEC and criminally by DOJ. Criminal insider trading under 18 U.S.C. § 1348 carries up to 25 years in prison. Insider trading under Section 10(b) carries up to 20 years.
What Is Material Nonpublic Information?
Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Information is nonpublic if it has not been disseminated to the market through approved channels. Common examples of MNPI include pending mergers and acquisitions, clinical trial results, earnings surprises, regulatory decisions, changes in senior management, major litigation outcomes, and significant contract awards or losses.
The government does not need to prove that the MNPI was the sole reason for the trade. It must prove that the defendant was in possession of MNPI at the time of the trade and that there was a duty not to trade on it.
Who Can Be Charged with Insider Trading?
Insider trading liability is not limited to corporate officers and directors. Anyone who trades on MNPI in violation of a duty of trust and confidence can be charged. This includes corporate executives, board members, employees at any level, lawyers, accountants, consultants, investment bankers, financial advisers, government employees, family members who receive tips, friends and associates who receive tips, and anyone in a tipping chain who knows or should know that the information originated from an insider source.
What Is Tipper-Tippee Liability?
A tipper is a person who discloses MNPI to another in breach of a duty of trust and confidence. A tippee is a person who trades on the information received from the tipper. Under the Supreme Court’s decisions in Dirks v. SEC and Salman v. United States, tippee liability requires proof that the tipper received a personal benefit from the disclosure. A gift of information to a trading relative or friend satisfies the personal benefit requirement.
Multi-level tipping chains are a primary enforcement target. Recent cases have involved information passing through three or more intermediaries before trading occurs. Each link in the chain must be proven by the government.
What Should I Do If I Am Under Investigation for Insider Trading?
Retain experienced federal defense counsel immediately. Do not speak with federal agents, respond to an SEC subpoena or grand jury subpoena, or make any statements to your employer’s compliance team without your own independent legal representation.
Common signs that you may be under investigation include receiving a grand jury subpoena or target letter, receiving a Wells Notice from the SEC, receiving a document request or interview request from the SEC, being contacted by FBI or Postal Inspection Service agents, learning that your employer has received subpoenas about your trading, receiving a FINRA inquiry, or learning that a friend, family member, or colleague has been contacted by investigators.
What Is a Rule 10b5-1 Trading Plan?
A Rule 10b5-1 plan is a written plan for trading in company securities that is adopted when the executive is not in possession of MNPI. When properly established, the plan provides an affirmative defense to insider trading charges. The SEC’s 2023 amendments to Rule 10b5-1 added mandatory cooling-off periods between plan adoption and the first trade, prohibited multiple overlapping plans, limited single-trade plans, and required enhanced disclosures by issuers about their executives’ trading plans.
A 10b5-1 plan does not provide absolute protection. The government can challenge the plan by arguing that it was adopted while the executive was in possession of MNPI, that the plan was modified after the executive obtained MNPI, or that the executive influenced the timing of corporate disclosures to benefit trades under the plan.
How Does the Government Prove Intent in an Insider Trading Case?
Insider trading cases are overwhelmingly circumstantial. The government rarely has a recording of the tip. Instead, prosecutors construct a mosaic of indirect evidence: trading patterns that are inconsistent with the defendant’s normal activity, the timing of trades relative to material announcements, the size and concentration of positions, the use of options to maximize leverage, and the absence of any documented research supporting the trade. The government layers this trading evidence with relationship evidence (proving the defendant had access to an insider) and communications evidence (proving contact between the tipper and tippee around the time of the trades).
Ephemeral and encrypted messaging has become a focal point of insider trading investigations. Prosecutors examine Signal, Telegram, WhatsApp, and other platforms for communications between the alleged tipper and tippee. The government obtains this evidence through search warrants for devices and cloud backups, through cooperating witnesses who preserved or screenshot messages, and through metadata showing the timing and frequency of contact even when message content has been deleted. The deliberate use of disappearing messages to communicate with someone who then trades can itself become evidence of consciousness of guilt. Prosecutors argue that the choice to use an ephemeral channel reflects awareness that the communication was improper.
What Defenses Are Available in an Insider Trading Case?
The available defenses depend on the specific charges and facts. Common defenses include the following.
No MNPI. The information was already public, was immaterial, or was general market knowledge at the time of the trade.
No duty. The defendant did not owe a duty of trust and confidence to the source of the information and was not aware that the information originated from someone who did.
No personal benefit. In tipping cases, the tipper received no personal benefit from the disclosure, which is a required element of tippee liability.
Independent basis for the trade. The defendant traded based on independent research, publicly available analysis, or a pre-existing investment thesis. The mosaic theory holds that combining pieces of publicly available information into an investment conclusion is legitimate analysis, not insider trading. Analysts and investors routinely synthesize public data from industry conferences, supply chain observations, regulatory filings, and expert networks to form trading decisions. If the defense can demonstrate that the defendant’s trading thesis was built from public sources, the government’s circumstantial case weakens significantly.
Rule 10b5-1 plan. The trade was executed pursuant to a valid, pre-existing trading plan adopted in good faith.
What Sentencing Exposure Do I Face in an Insider Trading Case?
Securities fraud under 18 U.S.C. § 1348 carries a statutory maximum of 25 years in prison. Insider trading under Section 32 of the Securities Exchange Act carries up to 20 years and criminal fines up to $5 million for individuals and $25 million for entities. The actual guideline range under the U.S. Sentencing Guidelines is driven primarily by the gain resulting from the offense under U.S.S.G. § 2B1.4.
The SEC can also seek civil penalties up to three times the profit gained or loss avoided under the Insider Trading Sanctions Act. FINRA can impose permanent industry bars. These collateral consequences can be as devastating as the criminal sentence itself.
Can SEC Testimony Be Used Against Me in a Criminal Case?
Yes. Testimony provided to the SEC under oath in a civil investigation can be used by DOJ in a criminal prosecution. The SEC conducts investigative testimony under Section 21(a) of the Securities Exchange Act. Witnesses are placed under oath and examined by SEC staff. The testimony is transcribed and becomes part of the investigative record. DOJ can obtain access to SEC investigative files, including testimony transcripts, through information-sharing arrangements between the agencies.
This creates a serious trap for individuals who cooperate with an SEC investigation without understanding that a parallel criminal investigation may be underway. Defense counsel must carefully evaluate the criminal exposure before allowing a client to provide testimony to the SEC.
Why Does Former DOJ Experience Matter in an Insider Trading Defense?
Insider trading cases are built on circumstantial evidence. The government rarely has direct evidence of the tip. Instead, it constructs a mosaic of trading patterns, communications records, relationship evidence, and cooperator testimony. Defending against this circumstantial case requires counsel who understand how DOJ assembles the mosaic and where it is weakest.
Scott Armstrong supervised insider trading prosecutions at DOJ’s Fraud Section, including a case that resulted in the conviction of four defendants for trading on MNPI about a $3.2 billion merger. Drew Bradylyons served as Chief of the Financial Crimes unit at EDVA, one of the most active insider trading prosecution districts in the country. That institutional knowledge of how DOJ builds these cases is a significant advantage in defending against them.
Does Armstrong & Bradylyons Handle Insider Trading Cases Nationwide?
Yes. Armstrong & Bradylyons PLLC defends executives, directors, traders, consultants, and financial professionals facing insider trading charges in federal courts across the country. The firm obtains pro hac vice admission in any federal district where a client faces charges or investigation.
Insider trading cases are concentrated in the Southern District of New York, the Eastern District of New York, the District of New Jersey, the Eastern District of Virginia, the District of Massachusetts, the Southern District of Florida, and the District of Columbia. Scott Armstrong and Drew Bradylyons have tried cases and handled investigations in federal courts across the country. The firm also handles securities fraud defense, securities market manipulation defense, and broader white-collar defense matters nationwide.