Compliance » DOJ and SEC Implement Data-Driven Initiative To Counter Inside Trading

DOJ and SEC Implement Data-Driven Initiative To Counter Inside Trading


March 22, 2023

On March 1 an executive of a publicly traded company was charged with insider trading violations pursuant to 10b5-1 trading plans he adopted while he was in possession of material nonpublic information. The rule, adopted in 2000, established an affirmative defense to insider trading in which insiders can set up automatic plans for future trades if they do so when they are not in possession of material non-public information. The indictment claims the defendant was in possession of material non-public information when he set up the plans, one in May 2021 and one in August 2021, and subsequently sold stock pursuant to those plans. D&O liability insurance policies specifically exclude coverage for claims involving damages produced by illegal insider trading, but they do cover the cost of defending against allegations of illegal insider trading. The SEC and the DOJ have both implemented data-driven initiatives to identify executive abuses of 10b5-1, but neither has publicly commented on how their analytics operate. According to the Akin Gump client alert referenced above, the DOJ and SEC are likely to focus on executives who make especially successful trades not long after plans have been adopted or modified.

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