The SEC needs to prove that an individual traded while in possession of what is called material nonpublic information, meaning an inside tip that was derived from a breach of a fiduciary duty by another.Alternatively, the SEC needs to prove that an individual lawfully came into possession of material nonpublic information—for example, a consultant to a company who is given access to that information for work purposes—but then misappropriated or misused it to trade for personal benefit.It is a lot easier said and defined than proven by the SEC.

I investigated insider trading cases when I was at the SEC. They are difficult to prove. As defense counsel, I insist that the government prove its case, or at least make a showing that it can prove its case.

For clients who did not engage in insider trading, I often advise them to speak to the SEC truthfully, look them in the eye and deny the allegations if that denial is true.

In other situations, I will advise my client to assert his Fifth Amendment right under the United States Constitution, which permits him to remain silent.

The United States Supreme Court has made clear that the Fifth Amendment is designed not only to protect the guilty, but is also designed to protect the innocent who have a reasonable fear of prosecution.

Under that reasoning, a client who is concerned that a statement may be misinterpreted or improperly used against him can constitutionally and lawfully remain silent.

What is the effect of that strategically? It requires the SEC to prove its case. It does not allow the SEC to use my client’s words against him. Instead, they need to independently establish by a preponderance of the evidence the elements necessary to prove their case.