Massive Disgorgement Penalties: A Financial Ruin for Insider Traders in Germany
Insider Trading Trials as a Financial Death Sentence
In Germany, insider trading trials have become a financial death sentence for defendants, with potential jail terms taking a back seat to massive disgorgement orders issued by courts. A recent case of a 48-year-old former public relations specialist has highlighted this trend, as he faced a potential debt of €24 million if found guilty of all charges - almost double the amount of illicit profits he is accused of gaining.
Dramatic Change in German Insider Trading Landscape
Germany’s insider trading landscape has dramatically changed since the government reformed its disgorgement laws in 2017. Every single euro involved in an illegal transaction is now seized by the government, regardless of whether it represents principal or profit. This approach is compared to treating insider traders like drug dealers, unable to subtract their costs from their earnings.
Second Punishment: Lifetime Financial Ruin
Insider traders are increasingly facing a second punishment. A potential jail term, while a significant concern, may pale in comparison to the financial ruin that follows. According to legal experts, this lifetime punishment may hinder the ability of insider traders to reintegrate back into society once they have served their jail time.
Exorbitant Disgorgement Orders
With no cap on disgorgement payments, significant penalties are easily incurred due to the fast-moving nature of stock market trading. For example, a trader who makes a €1,000 profit and reinvests that money in another transaction will have to pay €2,000 to the court if the trades are deemed based on insider information.
Potential Consequences for Whistleblowers
Some legal experts argue that Germany’s strict stance on insider traders may discourage potential whistleblowers, making it harder to track down perpetrators. Felix Rettenmaier, a lawyer for a Frankfurt PR advisor currently on trial, has pointed to the potential for economic annihilation for affected individuals.
Seeking Leniency: Relocation or Regulatory Reform
Opponents of the harsh stance believe that the best option for insider traders seeking leniency is to quietly relocate to a country with no extradition agreement with Germany. Some lawyers argue that German lawmakers could learn from European regulators who encourage whistleblowing and offer immunity to companies that actively disclose illicit activities.
Balancing Catching Suspects with Rehabilitation
In this increasingly punitive insider trading climate, Germany’s insistence on aggressive disgorgement orders risks driving a wedge between incentives for cooperation and the possibility of financial ruin for those seeking redemption. A balanced approach that prioritizes catching suspects while providing a meaningful opportunity for rehabilitation should be the ultimate goal.