Insider Trading in the Time of COVID-19: Risks and Best Practices

[...]it is vital that public companies reflect on the ways in which the current pandemic has expanded opportunities for corporate executives, and others, to trade on material, nonpublic information. In one recent case, a New York-based banking consultant settled insider trading charges with the SEC after trading on material nonpublic information he obtained while eavesdropping on the phone conversations of his then-fiancé, an investment banker, in their shared apartment.4 Similarly, spouses regularly have been charged with insider trading for trading on material nonpublic information overheard in confined spaces, including in cars during long road trips.5 The conditions created by the current quarantine restrictions-with business activity being conducted in confined spaces-are ripe for insider trading opportunities and resulting SEC investigations. [...]if an insider were to disclose material nonpublic information to a family member in confidence, and the family member were to then trade on that information, the insider would be jointly and severally liable with the individual who made the illegal trade, and also could face additional sanctions. Specifically, the Agency has noted that its Enforcement Division is committing substantial resources to ensuring that our Main Street investors are not victims of fraud or illegal practices in these unprecedented market and economic conditions.8 The SEC and US Department of Justice (DOJ) already have begun investigating insider trading allegations lodged against Senators Richard Burr, Kelly Loeffler, and others, alleging that these public officials sold millions of dollars in stock just weeks after being privately briefed on the substantial impact the novel coronavirus would have on the economy and the stock market.9 Accordingly, while the SEC has been sensitive to the needs of public companies during this crisis, offering a filing extension and enhanced disclosure guidance,10 the risk of being the target of an SEC investigation or enforcement action appears to have increased. [...]depending on the nature of the infraction, insider trading could also expose corporate insiders to a DOJ investigation and potential criminal liability. [...]there is a heightened risk that material nonpublic corporate information is being disseminated, wittingly or unwittingly, without any data or paper trail.