Insider Trading

Individuals are liable for insider trading violations when they buy or sell a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Under the SEC Whistleblower Program, individuals may be eligible for an award if they report original information about insider trading to the SEC. Whistleblowers can submit a tip anonymously to the SEC if represented by counsel.

As the SEC has warned, there is a heightened risk of insider trading after the COVID-19 pandemic.

[I]n these dynamic circumstances, corporate insiders are regularly learning new material nonpublic information that may hold an even greater value than under normal circumstances. This may particularly be the case if earnings reports or required SEC disclosure filings are delayed due to COVID-19. Given these unique circumstances, a greater number of people may have access to material nonpublic information than in less challenging times. Those with such access – including, for example, directors, officers, employees, and consultants and other outside professionals – should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading. Trading in a company’s securities on the basis of inside information may violate the antifraud provisions of the federal securities laws.

Under federal securities laws, a “relationship of trust and confidence” may exist in many circumstances, as highlighted in SEC Rule 10b5-2. Information is considered “material” if it would be important to a reasonable investor in making an investment decision. For example, insider-trading violations may occur when an individual:

• tips material, nonpublic information;
• trades securities based on tipped information; or
• trades securities based on misappropriated information.