Regulatory: Directors and officers and insider trading

An effective company policy can shield company executives from insider trading liability

Recent Securities and Exchange Commission (SEC) enforcement actions demonstrate the SEC’s willingness to impose personal liability on directors and officers of public companies who fail to take appropriate steps to prevent securities law violations by subordinates. In light of these enforcement actions and recent enforcement actions for insider trading violations, directors and officers should take extra care to ensure that their companies institute a policy against insider trading and closely monitor its effectiveness.

Federal securities law imposes personal liability on “controlling persons” who fail to take appropriate steps to prevent or detect securities law violations by their subordinates. Directors and officers of a public company are generally deemed to be controlling persons and are charged with a responsibility to enforce the company’s policy against insider trading, a responsibility that the SEC has demonstrated an increasing willingness to enforce.

Contributing Author

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Peter Fetzer

Peter Fetzer is a partner with Foley & Lardner LLP and focuses his practice on securities regulation, mergers and acquisitions, corporate governance and general corporate...

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