In recognition of the importance of robust securities markets, and recognizing that investor confidence is a key component of healthy markets, many jurisdictions have enacted statutes to prohibit insider trading. For example, many jurisdictions seek to prevent insider trading by requiring issuers of financial instruments to inform the public as soon as possible of inside information and generally regulating the dissemination of information and research concerning financial instruments.
In addition to general supervisory and investigative powers, statutes may vest financial authorities with the power to take necessary measures to ensure the public is informed, to punish non-cooperation with investigations, to suspend trading of the security in question, to freeze or sequester assets, to seek to temporarily enjoin professional activity, and/or to order wrongdoers to make restitution.
Injunctions serve the remedial function of barring insiders from future inside positions, but do not otherwise penalize the defendant. Affected corporations may recover through the process of disgorgement which compels the insider to turn over any losses avoided or profits made. Disgorgement is typically set at the difference between the price of the questioned transaction and the price following the public disclosure of the previously inside information. However, disgorgement merely restores a defendant to his original position before the trade in question without punishing the illegal behaviour. Some jurisdictions have found these remedies inadequate deterrents, and have enacted laws vesting financial enforcement authorities with the authority to impose fines, in some cases treble damages, or penalties up to three times the profit gained or the loss avoided by the insider trading.
States may also impose criminal sanctions for violations of insider trading prohibitions. To avoid criminal liability for insider trading, the insider usually must both disclose the information and wait to trade until the information is widely disseminated, or abstain from acting on it until the information is widely disseminated.