Cross-Border Regulatory Risks: How Insider Trading Enforcement Shapes Investor Trust

The recent case of Joseph El-Khouri, a UK-based trader ordered to pay $7.7 million in a U.S. insider trading civil case, underscores the growing complexities of cross-border regulatory enforcement and its ripple effects on investor confidence. While the U.S. Securities and Exchange Commission (SEC) secured a default judgment against El-Khouri for his alleged role in an international insider trading ringUK Trader Told to Pay $7.7 Million in US Insider Trading Case^[1], the UK Supreme Court's refusal to extradite him on criminal charges has exposed stark jurisdictional divides. This case isn't just a legal footnote—it's a cautionary tale for investors navigating global markets, where enforcement disparities can erode trust and distort perceptions of fairness.

The El-Khouri Case: A Legal and Market Divide

El-Khouri, a dual British-Lebanese national, was accused of coordinating with a former Goldman Sachs banker to exploit non-public information about corporate mergers and acquisitionsSEC Gets $7M Default Insider Trading Win Against UK Trader^[2]. The SEC's civil penalty—comprising $2.4 million in illicit profits, plus interest and fines—was secured after El-Khouri failed to respond to allegationsUK Trader Told to Pay $7.7 Million in US Insider Trading Case^[1]. However, the UK Supreme Court ruled in February 2025 that his alleged conduct primarily occurred in the UK, blocking extradition on the grounds that U.S. law doesn't extraterritorially apply to trades in contracts for difference (CFDs) via UK brokersUK-based trader wins fight against extradition to US on insider trading charges^[3]. The court emphasized that the only U.S.-linked activity—a middleman's New York hotel payment—was “purely incidental”UK-based trader wins fight against extradition to US on insider trading charges^[3].

This outcome highlights a critical issue: the clash between territorial jurisdiction and the global nature of financial crime. For investors, it raises a troubling question: If enforcement agencies can't agree on who's accountable for misconduct, how can markets maintain integrity?

Investor Trust and the Cost of Regulatory Fragmentation

Insider trading undermines market fairness by creating an uneven playing field. According to a 2025 study by Yanney, inconsistent regulatory alignment across jurisdictions complicates compliance for multinational firms, forcing them to restructure operations or realign supply chains to mitigate risksCross-border financial regulation and its influence on multinational business operations, tax structures and investment flows^[4]. Meanwhile, research by Lang et al. (2025) shows that enhanced cross-border cooperation—such as through the Multilateral Memorandum of Understanding (MMoU)—boosts investment efficiency by reducing information asymmetryThe effect of cross-border regulatory cooperation on investment efficiency^[5]. Conversely, cases like El-Khouri's, where enforcement actions falter due to jurisdictional disputes, signal to investors that regulatory frameworks may lack the teeth to deter misconduct.

The El-Khouri ruling also reinforces the principle of double criminality—a requirement that conduct must be illegal in both the requesting and requested states for extradition. While this protects against overreach, it can also create loopholes. For instance, if a trader exploits a legal gray area in one jurisdiction, they may evade meaningful consequences elsewhere. This inconsistency breeds skepticism: If enforcement is selective or geographically constrained, investors may question whether markets are truly level.

Market Implications: Confidence vs. Compliance Costs

The fallout from such cases isn't just theoretical. A 2024 study by Chen et al. found that regulatory “institutional misalignment” in emerging markets drives firms to pursue cross-border acquisitions to sidestep domestic risksRegulatory institutional misalignment and cross-border acquisitions^[6]. Similarly, the El-Khouri case could deter foreign investors from engaging in U.S.-listed securities if they perceive U.S. regulators as overreaching or unable to enforce penalties abroad.

Yet, the SEC's civil victory—though symbolic—demonstrates that U.S. regulators aren't entirely powerless. Default judgments, while difficult to collect, send a message: The U.S. will pursue misconduct, even if it can't secure criminal convictions abroad. For now, though, the lack of a clear path to collect El-Khouri's $7.7 million penalty leaves a bitter aftertasteUK Trader Told to Pay $7.7 Million in US Insider Trading Case^[1].

What Investors Should Do

For investors, the takeaway is twofold:
1. Diversify exposure to jurisdictions with robust enforcement frameworks. Markets where regulators can swiftly and consistently act against misconduct—like the U.S., EU, or Singapore—are more likely to sustain long-term trust.
2. Advocate for clearer cross-border cooperation mechanisms. While the El-Khouri case highlights jurisdictional limits, it also underscores the need for updated treaties that address modern financial crimes without overreaching.

Conclusion

The El-Khouri case is a microcosm of the broader struggle between global finance and fragmented regulation. While the UK Supreme Court's emphasis on territorial jurisdiction provides clarity, it also reveals the limitations of current systems in addressing crimes that transcend borders. For investors, the lesson is clear: Trust in markets hinges not just on the strength of individual regulations, but on their harmonization. Until then, the playing field remains uneven—and that's a risk worth hedging.