Can Buying Shares After a Friend’s Hint Lead to an Insider Dealing Charge?

Does It Matter if You Did Not Know the Information Was Inside Information?

Yes. What you knew about the information and where it came from is central to a criminal insider dealing allegation.

There is also an important difference between not knowing the law and not realising that your friend was sharing confidential information.

The Two Things You May Not Have Known

If you did not know that trading on inside information was illegal, that generally does not provide a defence. Ignorance of the law is not enough. However, genuinely not knowing that the information was confidential or came from an inside source is different.

For example, you may have understood your friend’s comment as an ordinary opinion about their employer rather than a disclosure of unpublished financial results.

Under the Criminal Justice Act 1993, the prosecution must establish that you knew the information was inside information and knew it came from an inside source.

Your friendship, the circumstances of the conversation and the words used may all be relevant. The fact that you bought shares afterwards may raise suspicion, but it does not by itself establish what you knew.

Statutory Defences Under CJA 1993

The Criminal Justice Act 1993 provides specific defences to criminal insider dealing.

These include showing that:

• You did not expect to make a profit because the information was price-sensitive.
• You reasonably believed the information had been disclosed widely enough that other investors would not be disadvantaged.
• You would have bought the shares even if you had not received the information.

The third defence may be particularly relevant if you had already been researching the company or intended to invest before speaking to your friend.

For example, an existing watchlist, investment plan or earlier research may help explain why you made the purchase.

However, the defence must be supported by the circumstances and evidence, rather than an explanation developed only after the investigation began.

What Records Can Help Explain Why You Bought the Shares?

Investigators may examine when you bought the shares, what your friend said and whether the company subsequently made an announcement that affected its share price.

Records created before or around the transaction can help explain your decision.

Trade Confirmations and Brokerage Records

Your brokerage records can show when you placed the order, how many shares you bought and the price paid. These details may be compared with the timing of your conversation and any company announcement.

For example, a purchase shortly before unexpectedly strong financial results were released may attract scrutiny. However, the timing alone does not prove insider dealing.

Messages and Communications

Preserve messages, emails and other communications with your friend around the time of the purchase. These may help establish what was actually said and whether the conversation included confidential corporate information.

Investigators may review WhatsApp messages and other digital records as part of the enquiry. Do not delete or alter conversations, even if you believe they are irrelevant.

Prior Research and Investment History

Evidence that you were already interested in the company may support your explanation for buying its shares.

Useful records may include earlier trades, watchlists, saved research, financial news and investment notes.

For example, if you had followed the company for several months and intended to invest before the conversation, those records may help establish an independent reason for your purchase.

However, previous interest does not automatically mean that later inside information played no part in your decision.

Notes of the Conversation Itself

If you made a note of the conversation at the time, preserve it. Even a brief message or diary entry may help establish what you understood from your friend’s comment.

If no written record exists, explain your recollection to your solicitor as accurately as possible. Avoid creating a retrospective account that appears to have been written at the time.

Can You Speak to Your Friend While You Are Both Under Investigation?

Possibly, but check whether any restrictions apply before contacting them.

Being investigated together does not automatically prevent all communication. However, discussing the allegations could create further difficulties, particularly if investigators believe you are coordinating your accounts.

Check Whether a Formal Restriction Exists

If you have been arrested or released on bail, check whether any conditions prevent you from contacting your friend. You should also review any formal undertakings or restrictions agreed during the investigation.

Breaching a legally binding restriction may have separate consequences. If you are unsure whether contact is permitted, ask your solicitor to check before you communicate.

Why Independent Legal Advice Matters Before Any Contact

Even without a formal restriction, discussing what happened with your friend could complicate the investigation.

For example, investigators may later compare your accounts of the original conversation and examine any messages exchanged after you became aware of the allegations.

You should not try to agree on what was said or persuade your friend to change their account.

If communication is necessary for an unrelated reason, your solicitor can advise on how to handle it without interfering with the investigation.

Can Your Trading Profits Be Frozen or Confiscated?

Your brokerage account or other assets may be restricted during an investigation, depending on the legal basis for the action. However, a broker restricting an account is different from a court making a restraint order or confiscation order.

Account Restrictions and Broker Freezes

A broker may restrict trading or withdrawals while reviewing suspicious transactions or complying with regulatory obligations. The reasons for the restriction should be established before deciding how to challenge it.

A restriction imposed under the broker’s terms does not automatically mean that a criminal court has frozen your assets.

Your solicitor can review the correspondence and identify the available options.

Restraint Orders Before Conviction

Under the Proceeds of Crime Act 2002, the Crown Court may make a restraint order where the relevant statutory conditions are met.

This can restrict access to bank accounts, investments and other assets before a criminal conviction.

The purpose is to preserve property that may become relevant to confiscation proceedings. A restraint order can be challenged or varied where there are legal grounds to do so.

For example, you may need to seek permission to use funds for reasonable living expenses, subject to the order and applicable rules.

Confiscation After Conviction

If you are convicted of insider dealing, the prosecution may seek a confiscation order under the Proceeds of Crime Act 2002.

The court assesses the financial benefit obtained from criminal conduct and determines the amount recoverable under the statutory rules.

That benefit is not always limited to the profit you made on the particular share purchase. However, confiscation is not automatic simply because you bought shares before a company announcement.

The prosecution must establish the relevant requirements, and the calculation depends on the circumstances.

What Penalties Could You Face if Convicted of Insider Dealing?

Criminal insider dealing can result in imprisonment, a fine or both. The FCA may also pursue civil market abuse proceedings, which have different legal requirements and consequences.

Criminal Penalties Under the CJA 1993

For offences committed on or after 1 November 2021, the maximum sentence for insider dealing in the Crown Court is ten years’ imprisonment, a fine or both. For offences committed before that date, the maximum custodial sentence was seven years.

The actual sentence depends on the seriousness of the offending and the circumstances established by the evidence.

A single disputed transaction is not automatically treated in the same way as an organised scheme involving repeated use of confidential information.

Civil Sanctions Under UK MAR

The FCA can also investigate insider dealing under the UK Market Abuse Regulation (UK MAR). These rules prohibit using inside information to trade and, in relevant circumstances, recommending or encouraging others to trade on that information.

The civil regime differs from the criminal offence under the Criminal Justice Act 1993, including in how knowledge and the use of inside information are assessed.

The FCA may impose unlimited financial penalties or issue a public censure where the legal requirements are met.

A person may therefore face regulatory action even where criminal proceedings are not brought.

How the Sentencing Council Guidelines Apply

When sentencing for insider dealing, courts consider the offender’s culpability, the seriousness of the conduct and the harm caused.

Relevant factors may include the value of the trades, the financial benefit obtained, planning and whether the conduct involved other people.

Previous convictions, personal circumstances and any guilty plea may also affect the sentence. The court must apply the relevant sentencing principles and statutory maximum.

The outcome will depend on the specific facts rather than simply whether the share price rose after the purchase.

How a Specialist Solicitor Can Help at This Stage

If you bought shares after a friend’s comment and are now being investigated for insider dealing, a solicitor can examine what was said, what you knew and why you decided to invest.

They can assess whether the comment met the legal definition of inside information, whether the prosecution can establish the required knowledge and whether any statutory defence may apply.

Your solicitor can also review your trading history, messages and earlier investment research before advising on how to respond to investigators.

If your account has been restricted or assets have been frozen, they can assess the legal basis and explain the available options.

Ashmans Solicitors advises individuals facing insider dealing and other financial crime allegations in England and Wales.

You can visit our Fraud and Financial Crime service page for further information.

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