Insider Trading Liability

Steep sanctions and reputation damage to the company often follow an insider trading event. Insider trading can be an elusive concept, mostly because the law has developed primarily through the judiciary and administrative proceedings. No statute or rule defines insider trading per se. However, Section 10(b) of the Securities and Exchange Act of 1934, as implemented by the SEC in the Securities and Exchange Act Rule 10b-5, serves as the chief avenue for imposing liability. The ambiguities in the law pose difficulties for implementation of preventive measures. The key to overcoming them is to prioritize the issue of insider trading and develop a corporate culture based on this priority. An important first step is to stay informed regarding recent enforcement cases. This should be the basis for continuing employee education and training. Another recommendation: Provide employees with an avenue for anonymous reporting of suspected violations.