Last week, the House passed the “8-K Trading Gap Act” by a vote of 384 to 7. A recent Troutman Sanders memo explains how this bill could impact insider trading policies if it becomes law. Here’s an excerpt:
A public company currently has up to four business days after the occurrence of a material corporate event before it must file or furnish a Form 8-K (the 8-K Gap Period). Current law does not prohibit insider trading per se during the 8-K Gap Period, absent a showing that the insiders have traded on material nonpublic information in their possession or violated the prohibition against “short swing” trading under Section 16(b) of the Exchange Act.
The purpose of the Act is to address this perceived loophole by directing the SEC to issue rules, no later than one year after its enactment, to require a reporting company under the Exchange Act to “establish and maintain policies, controls, and procedures that are reasonably designed to prohibit executive officers and directors of the issuer from purchasing, selling, or otherwise transferring any equity security of the issuer, directly or indirectly” during the 8-K Gap Period.
Under the current version of the bill, the SEC would be permitted to exempt transactions under Rule 10b5-1 plans that were adopted outside of the gap period – and the prohibition wouldn’t be triggered when an event is announced in a press release or publicly disseminated in a Reg FD-compliant way. A similar bill has been introduced in the Senate.
This follows another insider trading bill that the House passed last month. Meanwhile, a former Congressman was just sentenced to 26 months in prison for insider trading (a case that Broc and John blogged about when it broke).
-Liz Dunshee, TheCorporateCounsel.net January 23, 2020
