Most insider-trading cases involve civil suits and penalties. After the stock exchanges (e.g. the NYSE) detect unusual trading activity in a company's stock, they begin an initial review. When the activity warrants further attention, the stock exchange refers the case to the SEC, which starts an informal inquiry. The SEC itself now also wields a formidable array of computer technology to spot, track, and examine possible connections between people whose stock-trading activities, or possible connections to stock-trading activity (e.g. tipping), raise suspicion.
If suspicious trading activity is confirmed, the SEC's Enforcement Division may seek formal investigative power. This allows the SEC to issue subpoenas and compel testimony. It can obtain personal telephone records, address/contact records, email accounts, and bank statements. The long reach of the SEC extends beyond the United States. Even insider-trading cases involving only small profits will be pursued.
People under investigation may be formally charged with a civil violation of the securities laws before or after the formal investigation is completed. Trial in federal court will follow, or the parties may settle at any time before or after the filing of formal charges. Settlement involves the accused insider agreeing to pay a negotiated sum to the federal government.
Criminal insider-trading charges are brought by the US Attorney in the federal judicial district where the violation occurred. Most cases are referred by the SEC to the local US attorney's office. No rule of thumb exists in the violations that will result in a criminal charge, although they usually involve flagrant, intentional violations. You can also face parallel government investigations, making both a civil action and a criminal prosecution possible. To protect your constitutional rights, usually your lawyer will attempt to stay (i.e. put on hold) the civil case with the SEC while the criminal matter proceeds.
Alert: Parallel civil and criminal charges can also be brought, as shown in a case reported by The Wall Street Journal.