Insider Trading SEBI India and SEC USA compared laws penalties

Insider Trading  SEBI India and SEC USA compared  laws penalties 

SEBI (India) – Overview

The Securities and Exchange Board of India (SEBI) was established in 1992 with statutory powers to regulate India’s capital markets. 

It governs insider trading through the SEBI (Prohibition of Insider Trading) Regulations, 2015, which define the offense as trading based on Unpublished Price-Sensitive Information (UPSI).

SEC (USA) – Overview

The Securities and Exchange Commission (SEC), established in 1934, is the U.S. capital market regulator. 

It enforces insider trading laws under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, which prohibit trading based on Material Non-Public Information (MNPI).

Legal Powers & Criminal Prosecution

SEBI can impose civil penalties, bar individuals from accessing the securities market, and seek disgorgement of illegal gains. 

However, SEBI cannot directly imprison violators—criminal prosecution must be pursued through Indian courts with police or ED involvement. 

The SEC, on the other hand, works with the U.S. Department of Justice (DOJ) and can directly prosecute and imprison insider trading offenders through the federal system.

Penalties & Jail Sentences

Indian laws allow for penalties up to ₹25 crore or three times the gains made, and a potential jail sentence of up to 10 years—but actual jail terms are extremely rare. In contrast, U.S. laws permit criminal fines up to $5 million and jail sentences of up to 20 years, which are often enforced. High-profile offenders in the U.S. have served long sentences, making enforcement visibly stronger.

Consent Settlement Options

Both regulators allow non-trial settlements. SEBI uses “consent orders”, where accused parties can pay fines without admitting guilt, thus avoiding long legal proceedings. 

Fines can range from lakhs to crores of rupees depending on the severity. 

The SEC also allows settlements, sometimes without admission of guilt, but occasionally requires partial acknowledgment in high-profile cases. These settlements often include multi-million-dollar penalties and future trading bans.

Whistleblower Program

SEBI’s whistleblower mechanism was introduced in 2019, offering up to ₹1 crore for actionable insider trading information. 

The SEC’s whistleblower program, created under the Dodd-Frank Act, offers 10% to 30% of penalties collected, often resulting in multi-million-dollar awards, creating stronger incentives for reporting.

Surveillance & Investigation Tools

SEBI uses systems like NSE-SMART and conducts data monitoring to detect suspicious trades. 

However, the SEC uses more advanced tools, including AI, wiretaps, email monitoring, trading pattern analysis, and data triangulation. 

The SEC also uses plea deals to extract confessions from insiders.

Notable Cases

Indian cases include the Axis Bank WhatsApp leak, Biocon insider trading, and the Rakesh Agrawal case. 

Most result in market bans and penalties. In the U.S., big cases like Raj Rajaratnam (11 years in prison), Martha Stewart, and SAC Capital involved huge penalties and prison time, reflecting the SEC’s stronger deterrence.

Public Disclosure Rules

India requires insider trading disclosures to be made to stock exchanges (NSE/BSE), though there can be delays. 

The U.S. requires Form 4 filings within 2 business days, ensuring faster, more transparent disclosure of executive and insider transactions.

Speed of Legal Process

India’s legal system is known for slow trials, and insider trading cases can drag on for years. 

Convictions are rare and delayed. In contrast, the U.S. system moves faster, especially when plea bargains or settlements are used. Many U.S. insider trading cases are resolved within 1–2 years.

Summary

In conclusion, while both SEBI and the SEC aim to ensure fair market practices and investor trust, the SEC is far more aggressive, transparent, and effective in punishing insider trading. Jail time, multi-million-dollar fines, fast investigations, and whistleblower incentives make U.S. enforcement visibly stronger. SEBI has improved over time but still relies heavily on penalties and market bans, with criminal trials rarely reaching conviction.