Insider Trading Claims Can Derail a Business Trying to Attract Investors

January 26, 2012

nyse.bmpRecent news broke that hedge fund Diamondback paid federal prosecutors $9 million to settle claims of insider trading on Wall Street after allegedly profiting illegally from trading shares of Nvidia and Dell, the Financial Times reports.

Allegations of insider trading are serious and can leave a mark on a company from which it may be difficult to break free. The skills of a contingency business litigation lawyer may be beneficial to a business in this situation, however.

Contingency law work is helpful to the company because they aren't required to put down any money. The law firm puts up the money and only is paid in the case of a victory or positive outcome.

At a time when the company may be in hot water and may need its capital to be fluid in order to pay fines, do public relations work or make other types of payments, having a law firm working for them and doing it with no money out of their pocket can be a big benefit. Whether the lawyers are needed to weed out bad employees or work with prosecutors to deal with the allegations, this setup can help a company in need.

The New York-based hedge fund worked with federal prosecutors in Manhattan to avoid company officials from being prosecuted criminally, according to the news report. They forfeited $6 million and agreed to a statement of facts that laid out the conduct of two employees. The company also will continue operating with the government.

The fund also paid out $3 million to resolve civil insider trading charges brought by the Securities and Exchange Commission. Some believe that the non-prosecution agreement was the first involving a hedge fund adviser.

Federal prosecutors so far have secured 56 convictions of traders, consultants and lawyers as part of an FBI operation regarding insider trading. The Diamondback settlement relates to trades from 2008 and 2009.

But some Diamondback employees have been prosecuted criminally. Recently, a former employee was one of seven people charged in an alleged $62 million insider trading scheme. A former employee recently entered a guilty plea. The news report states that the company managed $5.9 billion in December 2010, but that number has shrunk to $2.5 billion, following a November 2010 FBI raid.

It's obvious that these high-profile cases involving corporate misdeeds and employee ethical or criminal violations can be a major problem for the businesses that have to deal with this type of situation. Investors and other corporations that may do business with the company may also be bringing legal action.

Businesses who find themselves in this tough position may get served with legal notices from seemingly every angle. They need sound legal representation. For companies that don't have a team of experienced attorneys in-house, the next best thing is to find a strong team of lawyers willing to work on a contingency basis.

The Ferraro Law Firm provides comprehensive legal services, including business litigation on a contingency-fee basis. Call 1-800-275-3332 for a free and confidential consultation. Offices in Miami, Washington, D.C., and New York City.

More Blog Entries:

Small Businesses Facing Embezzlement Require Contingency Business Litigation Counsel: November 8, 2011

Additional Resources:

Diamondback settles insider trading case, by Dan McCrum and Kara Scannell, Financial Times