The SEC’s top enforcers have warned directors and executives against taking advantage of developments arising from the Covid-19 pandemic to engage in insider trading.
Stephanie Avakian and Steven Peikin, co-directors of the SEC’s division of enforcement, in a statement on Monday emphasized the need to follow corporate controls and procedures during this period.
‘[I]n these dynamic circumstances, corporate insiders are regularly learning new material non-public information that may hold an even greater value than under normal circumstances,’ the officials say. ‘This may particularly be the case if earnings reports or required SEC disclosure filings are delayed due to Covid-19.’
The SEC on March 4 announced conditional regulatory relief for certain publicly traded company filing obligations as issuers deal with the effects of the coronavirus outbreak. The order, in an effort to address potential compliance issues, gives public companies an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020. Among other conditions, companies must provide a summary of why the relief is needed in their particular circumstances.
In the current situation, a greater number of people may have access to material non-public information than is usual, Avakian and Peikin note. ‘Those with such access – including, for example, directors, officers, employees, 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,’ they say.
They also urge public companies to be mindful of their disclosure controls and procedures, insider-trading prohibitions, codes of ethics and Regulation FD and other selective disclosure prohibitions to prevent improper dissemination and use of material non-public information.
In an article for Corporate Secretary advising boards on how to deal with Covid-19, Sidley Austin partners Holly Gregory, John Kelsh and Thomas Kim note that the SEC states in its March 4 release that if a company ‘become[s] aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and… take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.’
The attorneys advise companies to monitor and consider further restricting trading in company securities by insiders who may have access to material non-public information related to how Covid-19 is affecting, or will affect, the issuer. They note that this might involve requiring additional training, imposing blackout periods or beefing up preclearance procedures.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
