Tag: insider trading policies

SEC charges executives with insider trading— purported 10b5-1 plan provided no defense

It may look like just another run-of-the-mill insider trading case, but there’s one difference in this settled SEC Enforcement action: according to the SEC, it involved sales under a purported 10b5-1 trading plan while in possession of material nonpublic information. As you probably know, to be effective in insulating an insider from potential insider trading liability, the 10b5-1 plan must be established when the insider is acting in good faith and not aware of MNPI. Creating the plan when the insider has just learned of MNPI, as alleged in this Order, well, kinda defeats the whole purpose of the rule.  That’s not how it’s supposed to work, and the two executives involved here—the CEO and President/CTO of Cheetah Mobile—found that out the hard way, with civil penalties of $556,580 and $200,254. The company’s CEO was also charged with playing a role in the company’s misleading statements and disclosure failures surrounding a material negative revenue trend.  According to the Chief of the SEC Enforcement Division’s Market Abuse Unit in this press release, “[w]hile trading pursuant to 10b5-1 plans can shield employees from insider trading liability under certain circumstances, these executives’ plan did not comply with the securities laws because they were in possession of material nonpublic information when they entered into it.”

Clayton advocates “good corporate hygiene” when it comes to material inside information

In this letter from SEC Chair Jay Clayton to Representative Brad Sherman following up on a previous conversation, Clayton offers his views and provides some insights and signals on a number of policy issues related to “good corporate hygiene.” The topics include controls and policies designed to prevent insider trading, Rule 10b5-1 plans and the grant of stock options while in possession of material inside information. Apparently, the issues addressed were significant enough that Clayton has asked Corp Fin director Bill Hinman and others on the staff to raise these issues “in upcoming speaking engagements and to remind market participants of these views.”

New SEC guidance on cybersecurity disclosure

Yesterday, the SEC announced that it had adopted—without the scheduled open meeting, which was abruptly cancelled with only a cryptic statement—long-awaited new guidance on cybersecurity disclosure. The guidance addresses disclosure obligations under existing laws and regulations, cybersecurity policies and procedures, disclosure controls and procedures, insider trading prohibitions and Reg FD and selective disclosure prohibitions in the context of cybersecurity.  The new guidance builds on Corp Fin’s 2011 guidance on this topic (see this Cooley News Brief), adding in particular new discussions of policies and insider trading.   While the guidance was adopted unanimously, some of the Commissioners were not exactly enthused about it, viewing it as largely repetitive of the 2011 guidance—and hardly more compelling. Anticlimactic? See if you agree.