March 27, 2012

How the New Congressional Insider Trading Law – STOCK Act – Might Impact You

Last week, I blogged that Congress had finally passed a watered down version of the STOCK Act. Here’s some analysis courtesy of Ken Gross and his team at Skadden Arps about how this might impact companies:

The version of the STOCK Act passed by Congress includes the provisions from the Senate’s initial version that the insider trading provisions in Section 10(b) of the ’34 Act and Rule 10b-5 apply to Congressional Members and staff, and federal executive and judicial branch officials, and that these Members, officials and employees owe a duty with respect to material, nonpublic information derived from the person’s position with the federal government.

This raises an interesting question as to the companies with whom these Members, officials and employees share the nonpublic information. Do the companies become liable if they act on such information, similar to certain “tipees” in a traditional insider trading case? We believe that the STOCK Act could indeed create liability for the company under certain circumstances that are highly fact-specific. This also raises a question as to how extensive the protection is under the Speech or Debate Clause.

The Act includes a requirement (also in the Senate’s initial version) that the Comptroller General submit a report to Congress within 12 months of the date of enactment on the role of “Political Intelligence” in financial markets. It does not include the provisions from the Senate’s initial version that would have amended the Lobbying Disclosure Act of 1995 (by adding a new category of activities, “Political Intelligence Contacts,” that would trigger registration and reporting) and the illegal gratuities statute (by broadening the scope of the statute).

Given that they do not specify an effective date or reference a date by which an implementing regulation must take effect, the insider trading provisions take effect upon the date of enactment.

SEC’s Enforcement Gives First Person Credit for Cooperation

As noted in this Gibson Dunn memo, the SEC’s Enforcement Division gave the first individual credit for cooperation in an investigation, over two years after its cooperation policy statement was announced. Note that companies have received cooperation credit before – and it’s possible that other individuals have too that weren’t publicly announced. As the Gibson Dunn memo notes, the unique facts of this investigation might limit its application to other situations…

SEC Files Rare Subpoena Enforcement Action against Wells Fargo

In this blog from David Smyth of Brooks Pierce, we learn the latest about the SEC’s Enforcement Division wielding its subpoena power to compel production…

March-April Issue: Deal Lawyers Print Newsletter

This March-April issue of the Deal Lawyers print newsletter was just sent to the printer and includes articles on:

– Assessing the Locked Box Approach to Purchase Price Adjustments
– Just Enough To Be Dangerous: An Overview of M&A Tax Basics
– Shareholder Approval of Small Private Acquisitions: Has Omnicare Been Rendered a Farce?
– Boilerplate Matters: Giving Notice

If you’re not yet a subscriber, try a no-risk trial to get a non-blurred version of this issue on a complimentary basis.

– Broc Romanek