January 24, 2024

Taking a Fresh Look at Your Company Policies: Trading in Company Securities

At the Northwestern Securities Regulation Institute yesterday, I moderated a panel discussion titled “Taking a Fresh Look at Your Company Policies.” I was fortunate to be joined by a great group of panelists: Courtney Kamlet, Vice President, Group General Counsel and Corporate Secretary at Vontier Corporation; Alex Lee, Professor of Law and Director, Center on Law, Business, and Economics at Northwestern Pritzker School of Law and Andy Thorpe, Partner at Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP. We delved into the impact of recent SEC rulemaking and enforcement activity on a number of key policies.

We kicked things off by focusing on the SEC’s recent initiatives on trading in a public company’s securities by the company’s employees, executives and directors (and related persons and entities), as well as the SEC’s recent enforcement actions that have advanced novel theories of insider trading liability. We noted how the SEC’s recent activity in this area has had a significant impact on the policies that companies implement to address these matters.

We addressed the need to step back and consider the purpose of the company’s insider trading policy to avoid a trend toward “mission creep” in those policies. We noted how the prospect of controlling person or agency liability prompts public companies to implement policies and procedures for the purposes of managing access to material nonpublic information and preventing insider trading by company employees, officers and directors. We also discussed how companies should revise their insider trading policies to reflect the SEC’s 2022 changes to Rule 10b5-1 to incorporate the new conditions and restrictions that the SEC imposed through those amendments.

On the topic of addressing gifts in the insider trading policy, we noted how companies should revisit their insider trading policy in light of the SEC’s controversial 2022 guidance by bringing gifts within the purview of the insider trading policy. In this regard, it is appropriate to eliminate exceptions from the insider trading policy’s provisions that are specified for gifts, and broaden the scope of the policy to contemplate “engaging in transactions” in company securities rather than just “buying” or “selling” company securities. As a result of the contemplated changes, gifts should generally be subject to the insider trading policy’s general prohibition on engaging in transactions in the company’s securities while in possession of material non-public information, the pre-clearance procedures and quarterly trading restrictions.

We also discussed the SEC’s novel insider trading theory that has been termed “shadow insider trading,” noting that it is appropriate to revisit language in the insider trading policy that addresses the trading of securities of other companies while aware of material nonpublic information, with the goal of being more specific as to the relationship with those companies and how the information is obtained by the individual in the course of their work for their employer, rather than generally prohibiting trading in other companies’ securities.

For more discussion of necessary changes to insider trading policies, check out our January-February 2023 issue of The Corporate Counsel.

– Dave Lynn