Insider Trading

Insider trading matters often turn on whether alleged information was material and non-public, how and when the market incorporated it into a security’s price, and whether challenged trades are economically consistent with the alleged information. Brattle provides the economic analysis and expert testimony needed to evaluate these issues throughout investigations, enforcement actions, and litigation.

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Evaluating insider trading allegations requires careful analysis of communications, trading records, the total mix of information, and market data; competing explanations must also be evaluated

Brattle brings extensive experience in matters involving the US Securities and Exchange Commission (SEC), the Department of Justice (DOJ), and the Financial Industry Regulatory Authority (FINRA), along with a practical understanding of how regulators and prosecutors develop and test insider trading theories.

Drawing on this experience, our experts analyze the economic questions that arise in insider trading matters, from defining the alleged material nonpublic information and its dissemination to evaluating market reactions, analyzing trading patterns, selecting appropriate event windows, and assessing alleged gains or losses avoided.

Combining these analyses with deep expertise in economics, financial markets, and securities litigation, Brattle provides focused consulting and testimony throughout regulatory investigations, enforcement proceedings, civil litigation, and criminal cases.

Materiality and price impact

Daily and intraday event studies

Abnormal price changes

Confounding information and the total mix of information

Trading patterns and historical benchmarks

Trading plans and alternative motivations

Shadow trading

Key Areas of Expertise

The Brattle Advantage

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Evaluating trading patterns and economic benefit

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Assessing market reaction and materiality

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Analyzing the total mix of information

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Applying experience across insider trading investigations and litigation

Brattle analyzes trading records, communications, order and execution data, account history, compensation and vesting information, and relevant market data. The trades at issue are evaluated in the context of prior activity, taking into consideration liquidity needs, diversification, hedging, taxes, existence of trading plans, and other possible factors affecting trading decisions. Brattle also quantifies alleged gains or losses avoided under appropriate alternative assumptions.

Evaluating trading patterns and economic benefit

Daily and intraday event studies help assess whether the alleged information led to a statistically and economically significant price response. Our analysis considers event windows, benchmark models, information leakage, delayed reactions, market conditions, and confounding news. This work helps determine whether an observed price movement can reasonably be linked to the alleged material nonpublic information.

Assessing market reaction and materiality

Our experts analyze the information available to the market before and during the alleged trading period, including public filings, earnings materials, analyst research, news, rumors, industry developments, and macroeconomic information. We evaluate what the market already knew or expected, whether the alleged information added anything new, and whether other information better explains the market response.

Analyzing the total mix of information

Brattle's experience across regulatory investigations, enforcement proceedings, civil litigation, and criminal cases informs every stage of our analysis. Our experts understand how allegations are developed, how economic and market evidence is evaluated, and how analytical findings are tested throughout an investigation or litigation. This perspective helps us focus on the questions that matter most to regulators, prosecutors, counsel, and courts.

Applying experience across insider trading investigations and litigation

Representative Defense-Side Experience

Brattle experts have:

These representative engagements have addressed issues arising at multiple stages of litigation, ranging from pre-litigation exposure analyses to sentencing.

Brattle experts have been retained in a range of defense-side insider trading and related securities matters involving alleged trading on material non-public information (MNPI), including purported “shadow trading.”

Examined the informational environment surrounding corporate announcements and other market events. This work has included determining whether an announcement conveyed information beyond what was already reflected in prior disclosures, analyst commentary, market expectations, and other publicly available sources.

Analyzed transaction-level trading data to evaluate the timing, direction, size, and profitability of challenged trades. This work has included comparing trading activity across traders and co-defendants, examining historical trading behavior, testing hypothetical alternative trading strategies, and assessing whether observed patterns support alleged theories of misconduct.

Conducted daily and intraday event studies, analyzed stock-price and trading-volume movements, and evaluated potentially confounding information to assess whether observed market reactions could reasonably be attributed to the information alleged to constitute MNPI.

Independently evaluated external calculations of purported ill-gotten gains or losses avoided, as well as the assumptions and methodologies underlying such calculations.

Financial

Investigations

White-collar cases that allege covert or illicit schemes are often ultimately exposed or explained through analysis of financial records other than company financial statements. In the simplest examples, financial analysis may show whether investor funds were used for their stated purpose. More elaborate schemes may involve trading strategies; bribery; false claims; money laundering; start-ups, initial coin offerings (ICOs), or reverse mergers that are, in fact, pump-and-dump schemes; or classic Ponzi schemes in which the most recent duped investors’ funds are used to pay off earlier investors as well as enriching perpetrators.

In such cases, Brattle experts assist investigators and defense counsel by organizing and analyzing financial records, such as bank statements, brokerage accounts, trading data, and wire transfers. Increasingly, financial records include public and private blockchain activity and cryptocurrency wallets. Our analysis may also integrate email, phone calls, texts and IMs, SWIFT messages, and other communication media to link financial activity with specific stated purposes and individuals.

Representative Engagements

Plaintiff-Side Insider Trading Litigation Experience

Informed trading in prediction markets

10b5-1 plans

Investigations

During his tenure at the SEC, Dr. Jindra assisted with numerous insider trading investigations and litigated matters and performed analyses related to:

Materiality of the alleged MNPI
Trading coordination among network of traders
Shadow trading
Trading patterns of individual traders
Profits due to alleged trading on MNPI using large trade blotter datasets

Publications

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Jan Jindra

Principal | San Francisco

[email protected]

Erik Johannesson

Senior Associate | New York

[email protected]

Contact Us

about brattle

The Brattle Group is a premier global consulting firm specializing in economics and finance. With more than 550 professionals across North America, Europe, and Asia-Pacific, and a distinguished network of leading academics and industry experts, we bring analytical rigor, credibility, and clarity to complex challenges. For decades, clients have trusted Brattle for independent analysis in litigation, energy and financial markets, and regulatory and strategic advisory settings.

For additional information about our experts and services, please visit brattle.com.

Defined by excellence and committed to delivering clarity in the face of complexity.

Representative Engagements

In US v. Sam Bankman-Fried – referred to as one of the “biggest financial frauds in American history” – Brattle supported the only government expert witness, a professor of accounting. The Brattle team conducted both fiat and crypto tracing analyses using bank statements, blockchains, and crypto trading data. Our team analyzed flows and uses of funds across related accounts and entities, leveraging our forensic accounting expertise.

Click to view the link: US v. Sam Bankman-Fried

In US v. Liu et al., a Brattle team aided prosecutors in investigating whether a China-based company used a web of shell entities to avoid paying US export tariffs. Brattle’s experts traced entities under the control of the company’s chairman and examined how those entities were disclosed or misrepresented to investors. Analysis showed that hundreds of millions of dollars flowed through shell companies used by the company to avoid paying export tariffs.

Click to view the link: US v. Liu et al.

In US v. Tuzman, Brattle consultants and testifying experts analyzed detailed information relating to actions by the ex-CEO of the software platform company KIT Digital to transfer company funds to a hedge fund and trade the company’s common stock to artificially inflate its share price and trading volume. Consultants traced fund flows between the company, the hedge fund, and the trading activity. Brattle experts analyzed the corresponding financial statement reporting and its impact on the company’s market value. A Brattle expert testified about the stock price impact of the alleged fraud for sentencing purposes.

Analyses of Accounting Treatment of IP Licensing Transactions

In a criminal case against a senior executive of a public company, Brattle analyzed the business purposes and accounting treatment of certain intellectual property (IP) licensing transactions and whether they were used to overstate or smooth earnings to allow the company to meet earning expectations. The Brattle team analyzed financial records, accounting records, and audit work papers to understand the impact of the transactions and how they were being disclosed to investors and the company’s auditor. The team also examined email communications to assess what the auditor knew or should have known about the transactions and assumptions underlying the IP impairment testing and identified emails that were deleted by management by comparing recent productions with more complete archives. Brattle supported an accounting expert and former audit partner to prepare opinions on key questions of accounting treatment.

Representative Engagements

In an insider trading and fund misappropriation case, US v. Blakstad, a Brattle team developed a financial analysis tracing investor funds in Midcontinental Petroleum, Inc. Controlled by the defendant, the investments were used to fund personal expenses and later used as a vehicle to make use of proceeds of insider trading in Illumina, Inc. stock options.

Click to view the link: An insider trading and fund misappropriation case

Reconstructing Employer Contributions in Puerto Rico’s Pension Fund Bankruptcy

In defense of a bondholder lien claim on assets of the bankrupt public pension fund of Puerto Rico, a Brattle team reconstructed the flow of employer contributions used to service the bonds. We investigated whether employer contributions paid over ten years were properly used to fund bond repayments and interest obligations, and determined whether any remaining assets of the pension fund at bankruptcy were funded from employer contributions.

In US v. Atilla, Brattle conducted a data-intensive investigation into violations of US sanctions against Iran by Turkish financial services businesses that were disguising their activity as gold and, later, food trade. The investigation involved tracing financial transactions through accounts at Turkish and United Arab Emirates banks in multiple currencies and the corresponding US bank transactions when transfers were made in US dollars. Brattle integrated these data sources onto a single platform, creating metadata and data on communications involving bank employees and known persons of interest outside the bank. Our analysis also used changes in the sanctions regime to identify potentially related activity and communications.

In US v. Budovsky, Brattle conducted a detailed investigation of an $8 billion digital currency money-laundering scheme by an early cryptocurrency firm, Liberty Reserve. Brattle leveraged state-of-the-art data analytics to identify evidence of money laundering within the massive haystack of structured and unstructured data. By assembling, standardizing, and integrating data from different sources, Brattle’s team helped uncover anomalies and patterns indicative of illicit activity in one of the first and largest international money laundering prosecutions to date.