It doesn't seem very dissuasive to only have to return the ill-gotten gains for insider trading, as it makes the returns of such trading positive if not all insider traders are caught.
I know options are usually just cleared and pay out the difference if they’re in the money, but I don’t know if that’s how it’s seen legally.
No. The SEC is a civil agency which brings civil actions. Settling with the SEC does not prohibit the DoJ, or any state enforcement agency, from bringing criminal charges.
"For example, Section 16 of the Securities Exchange Act of 1934 requires the disgorgement of short-swing profits by named insiders—directors, officers, and 10% shareholders. The 1934 Act’s general antifraud provision, Section 10(b), is frequently used in the prosecution of insider traders. Although the statute does not specifically mention insider trading but, instead, forbids the use of “manipulative or deceptive” means in buying or selling securities, case law has made clear that insider trading is the type of fraud that is prohibited by Section 10(b)" (https://fas.org/sgp/crs/misc/RS21127.pdf, emphasis added)
In other words, everybody has just basically decided that insider trading is wrong and people should go to jail for doing it, and caselaw reflects that, but there's no actual statute in place anywhere.
The dispute over who might be theoretically harmed by insider trading relates to the legal theories proposed by courts and the SEC to justify the prohibition. Who might be harmed is of particular concern, particularly in the criminal domain, because we're dealing with an agency-created rule, and the courts are more-or-less following common law methodologies for specifying and circumscribing the rule. The applicable common law domain is Torts, and in Tort law there needs to be a breach of a duty to someone. Only once you identify that person (or persons) can you understand the scope of the duty owed them and by whom.
The two competing theories are (1) that insider trading violates a fiduciary duty to the company from which the information came or (2) that insider trading violates a duty to the public at large, the so-called Fraud on the Market theory. The Fraud on the Market theory is what the SEC still clings to, but courts won't buy it because it's just too broad and doesn't really comport with established common law principles. An important self-constraint to fashioning non-statutory law is limiting oneself to extending pre-existing legal principles.
The legislature isn't constrained by arcane legal technicalities. Their only constraint is the Constitution, which doesn't necessarily require shoe-horning laws into theoretically consistent buckets. The Fraud on the Market theory is too distant from any pre-existing legal principle, too distant from the plaintext of the existing statutes[1], and so only the legislature should be allowed to explicitly promulgate such a rule.
[1] This is why we're talking about common law principles and not more recent administrative law principles. These days courts probably would never have allowed an administrative agency to invent something like insider trading, particularly as a crime, and so wouldn't have needed to make recourse to foundational common law principles. The courts accepted the prohibition prior to the modern development of administrative law.
Confidence is a big factor, whenever someone manipulates the market they're shaving a few thousandths of a cent off of everyone's funds in stock exchanges by lowering the general public confidence in the stock exchange - and if that ever dips low enough all our futures could evaporate.
Realized gains is another big factor, the stock market is large and nebulous and terrible to try and understand, but money goes in whenever money comes out - when your stock goes from 10$ to 11$, good for you, have a party... but you haven't realized those gains yet - when you actually sell your stock there is a buyer buying them from you, often times you'll sell to a mutual or index fund which constantly allow market liquidity, when you do so your benefit is coming out of someone else's pocket. The idea is that the other person has made an informed decision with all the information available to both of you to take a certain level of risk - when you add in insider trading the information available becomes unequal and you are selling them a risk of quantity x and they're expecting to buy quantity y, where x > y, these damages end up (generally) being pretty wide spread, but they slightly lower the margins on your mutual fund return or index fund or what-have you.
Criminals love to minimize the impact of their crimes so don't buy into it here you wouldn't believe that a burgler that broke into your house to steal a broken TV should only be liable for the lock (or even that he saved you money in the disposal fee).
There are real consequences for insider trading and they are serious ones.
That hasn't stopped a crop of statues from springing up to deal with just that kind of behaviour.
> In a parallel proceeding, the U.S. Attorney’s Office for the Northern District of Georgia filed criminal charges against Bonthu.
[1] this press release
This settlement reflects the uncertainty of legal proceeding.
> Bonthu sold the put options and netted more than $75,000
WOW. 75K. Big fish there.
> According to the complaint, Bonthu was told the work was being done for an unnamed potential client, but based on information he received, he concluded that Equifax itself was the victim of the breach.
And the guy wasn't actually trading any insider info. He had info available to the general public and was smart enough to figure out the trade. Just like anyone else on wall street.