As reported on Columbia Law School’s Blog on Corporations and the Capital Markets, the Bharara Task Force on Insider Trading, chaired by former U.S. Attorney for the SDNY, Preet Bharara, and comprising former U.S. Attorneys and staff, academics and judges, has now issued its report and recommendations. The objective of the Task Force was to address the problem that insider trading law “has suffered—and continues to suffer—from uncertainty and ambiguity to a degree not seen in other areas of law, with elements of the offense defined by—and at times, evolving with—court opinions applying particular fact patterns.” Why is that? Because insider trading law is not defined by statute and has instead “developed through a series of fact-specific court decisions applying the general anti-fraud provisions of our securities laws across a broadening set of conduct.” The result has been a lack of clarity that “has left market participants without sufficient guidance” on how to avoid, or defend against, insider trading, made it more difficult for prosecutors to establish their cases and given the public “reason to question the fairness and integrity of our securities markets.”
In 2015, an academic study, reported in the WSJ, showed that corporate insiders consistently beat the market in their companies’ shares in the four days preceding 8-K filings, the period that the researchers called the “8-K trading gap.” The study also showed that, when insiders engaged in open market purchases—relatively unusual transactions for insiders—during that trading gap, insiders “are correct about the directional impact of the 8-K filing more often than not—and that the probability that this finding is the product of random chance is virtually zero.” The WSJ article reported that, after reviewing the study, Representative Carolyn Maloney, D.N.Y., a member of the House Financial Services Committee, characterized the results as “troubling” and said she was preparing legislation to address the issue. Five years later, in January 2020, by a vote of 384 to 7, the House has passed HR 4335, the “8-K Trading Gap Act of 2019.” A substantially similar bill has been introduced in the Senate. Given the remarkably bipartisan vote in the House—and assuming that the legislation isn’t suddenly tinged with politics—the bill appears likely to pass in the Senate as well…sometime.
In remarks on Thursday of last week to the Tulane Corporate Law Institute, SEC Commissioner Robert Jackson discussed what he termed to be “the most pressing issue in corporate governance today: the rising cyber threat.” To support his characterization, Jackson reports that, in 2016, there were over 1,000 data breaches with an aggregate cost of over $100 billion, according to the Identity Theft Resource Center. And the issue has “rocketed to the top of the corporate agenda”: “One recent study showed that nearly two-thirds of executives identified cyber threats as a top-five risk to their company’s future. That shows how quickly this has become a board-level issue.”
In Senate testimony, SEC Chair offers insights into his thinking on a variety of issues before the SEC
In testimony last week before the Senate Committee on Banking, Housing and Urban Affairs, SEC Chair Jay Clayton gave us some insight into his thinking about a number of issues, including cybersecurity at the SEC, cybersecurity disclosure, the regulatory agenda, disclosure effectiveness, the shareholder proposal process, climate change disclosure, conflict minerals, compulsory arbitration provisions, stock buybacks, the decline in IPOs and overregulation (including some interesting sparring with Senator Warren). Whether any of the topics identified as problematic result in actual rulemaking—particularly in an administration with a deregulatory focus—is an open question.
by Cydney Posner In a case decided unanimously today, Salman v. United States, SCOTUS upheld the Ninth Circuit affirmation of Bassam Salman’s conviction for insider trading, “adher[ing] to Dirks, which easily resolves the narrow issue presented here.”
by Cydney Posner A new study, reported in the WSJ, showed that corporate insiders consistently beat the market in their companies’ shares in the four days preceding 8-K filings, the period that the researchers called the “8-K trading gap.” The study also showed that, when insiders engage in open market purchases […]