TheCorporateCounsel.net

Yet another recent development affecting insider trading policies – and related compliance procedures – is the recent jury verdict in U.S. vs. Peizer. As Meredith noted last month, the DOJ is calling this case the “first insider trading prosecution based exclusively on the use of a trading plan.”

The case was based on the “old” version of Rule 10b5-1 – which had less stringent criteria to qualify for the affirmative defense – but we can still glean some insights. This Jenner & Block memo gives 3 ways to de-risk Rule 10b5-1 plans through compliance procedures, in order to protect your insiders from stepping into potential headaches & liabilities. Here are key takeaways:

1. Be aware of the perils of liquidations before bad news – In-house teams should be especially vigilant when the company has hit potential setbacks that have not been disclosed, appropriately scrutinize requests to implement or change Rule 10b5-1 plans, and highlight these risks to insiders.

2. Prepare to have determinations concerning material nonpublic information second-guessed – In-house teams should document their analysis on why a certain piece of information constitutes or does not constitute inside information. Taking the time to memorialize counsels’ view on why there was no material nonpublic information preventing implementing a plan should help a company demonstrate its good faith in the event of an investigation, and avoid a perception that a company is enabling insider trading or otherwise has a weak compliance function.

3. Use training and the required certifications to highlight the importance of good faith – This is an important fact to communicate to insiders, because there are instances where the executives themselves have more information than in-house teams concerning the corporate issue at the heart of material nonpublic information analysis. To communicate the importance of the issue, in-house teams can conduct periodic trainings on insider trading. This training could also highlight to executives the rationale for the SEC’s new explicit requirement of good faith.

– Liz Dunshee