Insider Trading: Five Reminders From the SEC Division of Enforcement

A recent litigation release from the SEC Division of Enforcement, though seemingly unremarkable, highlights five basic principles that sometimes slip off a company’s insider trading compliance radar. The SEC’s complaints. According to the SEC’s complaints against two former employees and the spouse of a former employee of Ariad Pharmaceuticals, Inc., which develops and markets drugs to treat cancer: The husband of an Ariad employee traded Ariad stock before company announcements about the safety profile and FDA approval status of Ariad’s only FDA-approved drug and after his wife learned of material non-public information related to Ariad’s dealings with the FDA. The husband also advised a friend to trade Ariad stock on the basis of non-public information learned from his wife, enabling the friend to obtain profits of $4,188.00. Ariad’s former Senior Director of Pharmacovigilance and Risk Management sold Ariad stock after she had attended meetings with the FDA and had learned of a forthcoming FDA decision to require Ariad to include a safety warning on its product label, thereby avoiding $9,420.00 in losses. Ariad’s former Associate Director of Pharmacovigilance and Risk Management alerted certain of her relatives one day before Ariad publicly announced a pause in all clinical trials for its FDA-approved drug. By selling in advance of Ariad’s announcement, her relatives avoided $2,888.10 in losses. The SEC’s complaints charged each defendant with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and sought various injunctions, disgorgements with interest, and civil penalties. The five reminders. First: The SEC remains vigilant against insider trading of all shapes and sizes. For example, consider that: Ariad was relatively...

Sustainability Reporting After the Paris Climate Accord

It’s fair to say that President Trump’s June 1 announcement that the U.S. will withdraw from the Paris climate accord has been widely reported. It’s also fair to say that the announcement triggered a host of passionate reactions, positive and negative, around the world. Within corporate America, a number of high-profile corporations (for example, Apple, Disney, Facebook, General Electric, Google, Salesforce, Tesla and Twitter) pledged to continue their efforts to cut greenhouse gas emissions and adhere to the spirit of the accord. This leads one to wonder whether withdrawal from the Paris climate accord might, per the law of unintended consequences, actually increase investor emphasis on corporate social responsibility (CSR) and the number of companies that voluntarily report their sustainability initiatives. It’s an intriguing possibility. Momentum for sustainability reporting has been building for years. In fact, the vast majority of S&P 500 companies now publish some type of sustainability or CSR report, and disclosures have begun to appear in SEC filings, particularly proxy statements. Mid-size and smaller companies, lacking the resources of their larger brethren, have been slower to do so, though some have begun and others are giving it serious consideration. Increased pressure from institutional investors, employees and other stakeholders, now coupled with widespread concern over withdrawal from the accord, could tip the reporting balance, especially for companies in sustainability-sensitive industries or companies that otherwise want to send a certain message. One challenge for all companies is to make sense out of the CSR reporting landscape. First of all, the terminology itself—sustainability, CSR, environmental, social and governance (ESG), and triple bottom line, to name a few—is confusingly ambiguous...

Introducing a Fresh Perspective on Governance, Risk and Compliance

With the fifth anniversary of Doug’s Note fast approaching (and more than 250 posts and 250,000 reads in the rearview mirror), it seemed like a good time to consider where to go from here. Where, as it turns out, was to create a companion blog devoted to governance, risk and compliance, which are among the hottest issues in corporate America these days. Parker Poe’s GRC Blog reflects the joint contributions of our GRC team, co-led by Jane Lewis-Raymond, former chief compliance officer and general counsel of a large public company, and by me. Together, we provide more than 50 years of experience counseling public and private companies of all shapes and sizes on compliance program design, risk assessment, enterprise risk management, crisis management, remediation and training. Essential to the blog’s success are the contributions of our larger GRC team, which consists of attorneys whose practices focus on such key areas of corporate compliance as: Anti-Bribery & Anti-Corruption Antitrust & Consumer Protection Criminal & Regulatory White Collar Compliance Crisis Management Cybersecurity & Data Privacy Employment Environmental Government Contracting & False Claims Act Compliance Immigration SEC Reporting & Compliance Tax Trade Compliance Our GRC Blog includes insights on such matters as creating a compliance culture, ensuring compliance with the Federal Sentencing Guidelines and the DOJ’s program evaluation guidance, the interplay of compliance professionals, executive management and boards of directors, balancing GRC goals against the realities of budget and personnel constraints, and a whole lot more. Recent posts include, for example: Take-aways from the recent global ransomware attack (click here), The board of directors’ role in compliance programs (click here) , Where...

Long-Term, Principles-Based Governance–A New Paradigm

Last August, I wrote about the Commonsense Principles of Corporate Governance recently advocated by a group of executives at thirteen major companies and investor institutions for the purpose of providing “a basic framework for sound, long-term-oriented governance.” (See this Doug’s Note.) At the time, they reminded me of the U.K.’s long-standing emphasis on principles-based governance, as set forth, for example, in the U.K. Corporate Governance Code applicable to companies with a Premium listing on the London Stock Exchange and addressing such categories as Leadership, Effectiveness, Accountability, Remuneration and Relations with Shareholders. Likewise, the U.K. Stewardship Code sets forth seven basic principles of conduct to be followed by institutional investors and asset managers to “protect and enhance the value that accrues to the ultimate beneficiary.” Now comes The New Paradigm with the following intriguing subtitle: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth. This thoughtful 22-page document is interesting not only because it follows so closely on the heels of the Commonsense Principles (which it cites several times) and expressly draws on the U.K.’s and Europe’s experiences with principles-based governance, but also because it is authored by Martin Lipton (and others) and presented last fall at the International Business Council of the World Economic Forum. Mr. Lipton is, of course, a pre-eminent legal authority on corporate governance, while the World Economic Forum is, according to its website, an independent non-profit established in 1971 and headquartered in Geneva, Switzerland that “strives in all its efforts to demonstrate entrepreneurship in the global public interest while upholding the highest standards of governance”...

It’s Time to Consider Virtual Annual Meetings

More and more companies are moving to virtual-only or hybrid (both virtual and physical) annual shareholder meetings, though they remain in a substantial minority. Other companies sometimes pause to consider virtual meetings as they begin the annual proxy season sprint, then abandon the notion due to the press of time. Many (most?) companies haven’t yet considered them at all. In truth, there is much to be thought through, and much to be put in place, before taking the virtual meeting plunge—so much so that companies with spring proxy seasons have likely missed their chance for this year. Now is the perfect time, however, to tee up the issue for next year while management and the board of directors is focused on the annual meeting process. What is a virtual annual shareholders’ meeting? Virtual meetings can take many forms. Some are solely audio, much like most quarterly earnings calls. Others include video, much like a typical webcast. And as mentioned above, some companies (often those transitioning from physical to virtual-only meetings) hold hybrid meetings. Essentially, shareholders are issued a verifiable control number that allows them to access a secure meeting page, where they may listen to the meeting presentation and vote (if they have not already done so by proxy or if they wish to change their prior vote). Often they can ask questions, whether in real time by audio or electronically, or by submitting questions ahead of time. The meeting details and logistics of a virtual meeting can be tailored to the needs of each company, based on its analysis of its shareholder base and the message it wants...

Quiet Period Best Practices

The insider trading policies of almost all public companies contain closely monitored “black out” periods that prohibit trades by designated classes of employees during certain periods in the company’s SEC reporting cycle. Less prevalent, and less rigidly enforced, are “quiet period” policies, which generally forbid management from discussing financial results, business outlook or other material matters with analysts and investors. Quiet periods are not required by any SEC rule, though they are influenced by the prohibitions of Regulation FD. In fact, many companies that have adopted quiet period policies include them as part of their Regulation FD or other external communication policies. Other companies observe quiet periods without having reduced their policies to writing. To avoid confusion, enhance corporate governance and ensure effective disclosure controls and procedures, companies should revisit their quiet period policies from time to time. Anecdotal evidence suggests that most companies match their quiet periods to their blackout periods, which generally seems like a good idea. However, it is possible to be quiet too long, meaning that it may, in some circumstances, do more harm than good to shut out all communications with analysts and investors for vast swaths of the year. While it makes sense to black out insiders from trading in the company’s securities for extended periods of time coinciding with quarter ends and earnings releases, a company may feel comfortable letting a limited subset of senior management (for example, the CEO, CFO and Head of IR) who are well-trained on proper communication parameters (including Regulation FD) speak to market participants during certain portions of a blackout period. With Regulation FD having been around for...