In October 12, 2012, I wrote about CalPERS’ proposed adoption of regulations governing personal trading by members of its Board of Administration and employees. Although I did offer a few technical comments on the proposed rules (see CalPERS’ Final Statement of Reasons), I questioned the conceptual basis for those rules. In particular, I noted that it seemed unlikely that public issuers would be disclosing material, nonpublic information to CalPERS in light of Regulation FD and CalPERS’ general inability to provide assurances of confidentiality.
Over the weekend, John Ortiz at The Sacramento Bee reported:
“Federal investigators are looking into allegations that CalPERS violated insider trading laws this year when it purchased $26.6 million in restricted stock and then decided it didn’t need to reverse the trades when they were discovered.”
Readers may recall that in 2005, the Securities and Exchange Commission issued a Section 21(a) report
with respect to the The Retirement Systems of Alabama (RSA). At the time, RSA had no policies prohibiting insider trading. Notably, RSA had entered into a written non-disclosure agreement with the issuer that specifically prohibited trading in reliance on material, non-public information.
CalPERS issued a response that essentially denied the existence of any material, non-public information:
After a thorough review by our legal, compliance and investment offices, including interviews with the investment officers who were involved with the transactions, it was concluded that CalPERS traders were not in possession of any material, non-public information about these two stocks at the time of the CalPERS trades. It was further concluded that there was no evidence of any insider trading or any other violations of federal securities laws. We are confident that our policies and processes were followed in identifying and addressing this issue.
CalPERS continues by patting itself on the back for having “implemented the most comprehensive personal trading program of any public pension system in the United States.” Having reviewed numerous insider trading policies over the years, my own view is that CalPERS has much to be modest about. In fact, I’ve never seen such an confusing and confused policy. Rather than saluting itself, CalPERS should be hasting to rewrite its policy.