On March 23, the Division of Enforcement of the Securities and Exchange Commission (SEC) issued a Statement warning against insider trading during the ongoing COVID-19 pandemic.  In particular, the SEC cautioned that insiders are “regularly learning” new material non-public information (MNPI) that may “hold an even greater value than under normal circumstances.”  The SEC also noted that unique circumstances mean more people may have access to MNPI than may typically be the case.  This is particularly true for companies that delay earnings releases and SEC filings due to the pandemic.

Recognizing the heightened risk of illegal securities trading as a result of these and other factors, the SEC urged publicly traded companies to be mindful of their established controls and policies to protect against the improper dissemination and use of MNPI.

Proactive Steps for Public Companies

In light of the SEC’s Statement and the unique circumstances that companies are facing during the pandemic, publicly traded companies should take affirmative steps to mitigate insider trading risks.

Potential steps could include:

1. Reminding all employees (many of who are working remotely in less secure environments) of the importance of maintaining the confidentiality of all non-public information that they may learn in the course of their employment. Also consider distributing a copy of the company’s insider trading policies.
2. Reexamining internal controls related to trading in the company’s securities. Consider, for example, whether traditional blackout and preclearance procedures should be expanded to cover a broader group of employees (based on who has access to MNPI).
3. Consulting with counsel on an as-needed basis to determine whether any particular information might be considered material to an investment decision and whether (and to what extent) the company is obligated to publicly disclose such information.
4. Reminding any designated corporate spokesperson of requirements surrounding Regulation FD and selective disclosure. At a time when companies may be fielding many questions from investors, they must be particularly careful to avoid selective disclosure of MNPI about how COVID-19 is affecting them.