September 29, 2017

Insider Trading: Hacks Prompting SEC to Rethink Legislative Fix?

According to media reports, SEC Chair Jay Clayton faced some tough questioning from the Senate Banking & Finance Committee earlier this week on the Equifax fiasco & the SEC’s announcement that the Edgar system had been hacked.

In addition to concerns about the SEC’s delay in disclosing its own hack, lawmakers focused on the need for new SEC guidelines addressing the disclosure obligations of companies involving data breaches. This Bloomberg article also reports that Jay suggested that he was open to working with Congress on efforts to enact “legislation to ensure executives don’t profit by buying or selling company stock before the public is told about market-moving news.”

What sort of legislation the Chair might back remains to be seen.  However, his openness to Congressional action seems to represent a bit of a departure from previous statements – earlier this month, the WSJ reported that Jay said that legislation defining insider trading wasn’t necessary.

Any way you slice it, insider trading law isn’t exactly a model of clarity.  As a case in point, this Linked-In article says that if the SEC’s hackers traded on the information they obtained, they likely won’t be subject to liability under insider trading law as it currently exists – instead, the SEC would need to rely on a much less well established “outsider trading” legal theory.

Also this blog by Keith Bishop with some interesting questions about how insider trading laws would work with the hacker of the SEC’s Edgar. As noted in this MarketWatch piece, perhaps the hackers would be prosecuted in same way the SEC went after the Ukranian hackers of the wire services a few years ago…

Litigation Survey: South Dakota Dethrones Delaware

In a development that’s akin to the Alabama Crimson Tide not making the CFB playoff, the US Chamber of Commerce’s recent lawsuit climate survey says that South Dakota has knocked Delaware from its traditional top spot as the state with the most pro-business litigation climate.

There’s been a lot of commentary about the impact of Delaware’s rejection of disclosure-only settlements & changing approach to deal litigation, but according to the Chamber, that’s not what dethroned Delaware.  Instead, it’s a pro-plaintiff legislative climate & absence of tort reform that’s soured business on the First State:

“Delaware no longer lives up to its nickname as the ‘First State,’” said ILR President Lisa A. Rickard. “As the competition between states to enact legal reforms gets tighter, Delaware is losing ground.”

Delaware is getting passed by. The state’s main business court has remained solid, repeatedly refusing to approve bogus settlements where lawyers get all the money. But while other states are busy passing tort reforms, Delaware’s legislature is siding more with the plaintiffs’ lawyers than businesses.

This “Delaware Law Weekly” article says that another big reason for Delaware’s fall from grace was the legislature’s decision to overrule the Delaware Supreme Court and ban fee-shifting bylaws:

According to Bryan Quigley, senior vice president of communications for the ILR, the fee-shifting ban was of particular concern to companies, which complained that the General Assembly essentially overruled the state Supreme Court after the justices OK’d the so-called “loser pays” provisions for nonstock corporations.

Lawmakers, acting on the recommendation of the Delaware State Bar Association, passed the legislation amid fear that the same conditions would be imposed on stock corporations.

After occupying the top spot since 2002, Delaware tumbled to #11 in this year’s survey – that not only will keep it out of the playoff picture, but probably dashes any hope of a New Year’s Day bowl appearance.

SEC Provides Regulatory Relief for Hurricane Victims

Yesterday, the SEC issued an order granting conditional exemptions from filing deadlines and other requirements for companies & others by the series of hurricanes that recently struck the U.S. & Caribbean. It also adopted interim final temporary rules extending filing deadlines for specified reports and forms required under Regulation Crowdfunding & Regulation A. Here’s the SEC’s press release.

John Jenkins