Can you go to prison for insider trading?

| by Max Soni

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek – a seasoned criminal defense attorney with many, many years of experience. Our team has over 40 years of combined experience handling criminal defense cases, including cases that others say were unwinnable. You might know us from the Netflix series about one of Todd’s clients, Anna Delvey, or our work on the Ghislaine Maxwell juror misconduct case. We handle high-stakes federal cases – securities fraud, insider trading, wire fraud – across the country.

If you’re asking whether insider trading leads to prison time, you already know something’s wrong. Maybe you traded on information you shouldn’t have had, maybe the SEC is asking questions, maybe federal prosecutors left a voicemail. The short answer – yes, you can go to prison for insider trading, and many people do. The maximum sentence is 20 years in federal prison. That’s not a scare tactic, that’s the law under the Securities Exchange Act as amended by Sarbanes-Oxley. People are serving multi-year sentences right now for exactly what you’re worried about.

What matters more than the maximum sentence is what actually happens in federal court. Prison time depends on how much money was involved, whether you’re the tipper or the trader, if you tried to hide it, and whether you cooperate. Federal judges don’t hand out maximum sentences often – but they do send people to prison for insider trading regularly, even in cases involving a few hundred thousand dollars.

Terren Peizer, the former CEO of Ontrak, got 42 months in prison in June 2025 for insider trading through his Rule 10b5-1 trading plan. He avoided $12.5 million in losses by selling stock before bad news went public about the company’s largest customer terminating their contract. He also paid a $5.2 million fine and forfeited $12.7 million. The U.S. Attorney said individuals who “impugn the integrity of our markets can and will face prison time for their crimes.” They meant it.

In April 2025, an Oregon retiree got one year in prison for his role in a $47 million insider trading scheme. His co-conspirator – the Nuveen LLC trader who tipped him off to thousands of trades – received nearly six years. The sentences weren’t equal because their roles weren’t equal. Federal sentencing considers your level of culpability, not just the dollar amount. Another California man got two years in February 2025 for an insider trading scheme that netted $650,000. The amounts don’t need to be massive – federal prosecutors pursue cases in the hundreds of thousands.

People think insider trading is about stock tips at country clubs or hedge fund managers with secret sources. Sometimes it is – but it’s also employees trading before their company announces layoffs, executives selling before earnings tank, consultants passing information to friends, lawyers trading on deals they’re working on. The SEC defines illegal insider trading as buying or selling a security while in possession of material, nonpublic information about that security. Material means a reasonable investor would care about it when making investment decisions. Nonpublic means it hasn’t been disseminated to the market yet.

You don’t need to be a corporate insider. The misappropriation theory – upheld by the Supreme Court – means you can be prosecuted for trading on confidential information even if you don’t work for the company whose stock you’re trading. If you have a duty to keep information confidential and you trade on it anyway, that’s insider trading. If someone gives you a tip and you know they breached a duty to share it, you’re liable too.

Federal prosecutors don’t need to prove you actually used the information – just that you possessed it when you traded. That’s a critical distinction. You can’t defend yourself by saying “I was going to buy that stock anyway” or “I didn’t rely on the tip.” Rule 10b5-1 establishes that awareness of material nonpublic information when making a trade is enough. Possession equals use in federal court.

The penalties aren’t just prison time. Criminal fines can reach $5 million for individuals – $25 million for entities like companies or hedge funds. The SEC pursues civil penalties on top of criminal charges, and those civil penalties can be three times the profit you made or the loss you avoided. Triple damages, they call it. So if you made $2 million on illegal trades, the SEC can hit you with a $6 million civil penalty, plus disgorgement of the original $2 million, plus prejudgment interest. Then there’s the criminal fine and the prison sentence.

People also face officer and director bars – permanent bans from serving as an executive or board member of any public company. That’s a career death sentence if you work in finance or corporate America.

Sentencing trends have gotten harsher. The median sentence was less than one year in the 1990s, jumped to 18 months in the early 2000s, and now sits around three years for insider trading convictions. That’s the median – meaning half the sentences are longer than three years. Federal judges consider the federal sentencing guidelines, which calculate offense levels based on the amount of money involved and aggravating factors.

Cooperation matters – but it’s not a get-out-of-jail-free card. If you provide substantial assistance to prosecutors, they can file a 5K1.1 motion for a downward departure from the guidelines. But cooperation requires giving up co-conspirators, wearing a wire, testifying at trial. It’s trading information for leniency, and prosecutors decide if what you’re offering is valuable enough.

If federal agents contact you, if the SEC sends a subpoena, if your broker freezes your account – that’s when you call a lawyer, not after you’ve already talked to investigators. Anything you say will be used to build the case against you. People think they can explain their way out of suspicion. You can’t. Federal prosecutors don’t ask questions because they’re confused – they ask because they already know the answers and they’re testing whether you’ll lie. Lying to federal agents is a separate crime that carries its own prison sentence.

We’ve represented clients in securities fraud cases, RICO cases, wire fraud – the kinds of federal prosecutions where the stakes are your freedom and your future. Federal charges aren’t like state charges. The conviction rate in federal court is over 90% because prosecutors only bring cases they know they can win. That doesn’t mean you’re without options – it means you need a defense strategy built by people who understand how federal prosecutions work, how sentencing guidelines operate, when cooperation makes sense and when it doesn’t.

Prison time for insider trading is real – 42 months for the Ontrak CEO, six years for the Nuveen trader, two years for a scheme that netted $650,000. Federal judges impose these sentences regularly in 2025. The maximum is 20 years, but even the median of three years is enough to destroy a career, a family, a life. If you’re facing this, you need lawyers who’ve handled federal securities cases and know what prosecutors look for, what judges care about, and how to build a defense when the government has emails, trading records, and wiretaps.