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Are sands shifting on defining insider trading?

Look for a definition of the phrase "insider trading" on line and you're likely to be delivered a fairly straightforward response. The one that turned up for us from Webster's New World College Dictionary was: "insider trading: The buying or selling of a company's stock by one who has access to information not made public."

That's the easy answer. But how the definition of insider trading translates when it comes to action in a court of law is much more nuanced, as a couple of recent cases reflect.

In the first, decided some months ago, a federal appeals court overturned the criminal convictions of two Wall Street hedge fund managers on insider trading charges. The panel said the trial court erred by not requiring prosecutors to prove that the defendants knew that the sources of inside information had actually benefitted financially from the sharing.

But an attempt to use that ruling in the criminal case failed to get similar traction earlier this month in a civil case. A federal judge refused the defendants' plea to throw out an insider-trading suit brought by the Securities and Exchange Commission. The judge ruled that while a criminal conviction requires proof that a defendant acted willfully, the standard of proof in a civil case is lower. All that has to be shown is that a defendant acted with "disregard of the probable consequences."

For some, this might sound like a distinction without a difference. But as experienced criminal attorneys in Minneapolis and elsewhere will affirm it is important. And considering how high the stakes can be for someone facing federal fraud charges, working with skilled counsel is always advised.

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