Controlling Material, Non-Public Information During the Coronavirus Pandemic

by John F. Savarese, Wayne M. Carlin, and David B. Anders 

In an unusual statement issued earlier this week, the Co-Directors of the SEC’s
Division of Enforcement, Stephanie Avakian and Steven Peikin, reminded market
participants of the critical importance of maintaining proper control over the
dissemination of material, non-public information, adhering to the restrictions
imposed by Regulation FD on selective disclosures, and assuring compliance with
policies and procedures designed to prevent insider trading and other conduct that
would undermine market integrity. They stressed in particular that, as companies and
markets cope with the outbreak of COVID-19 and the continuing coronavirus
pandemic, corporate insiders are likely learning new material, non-public information
“that may hold an even greater value than under normal circumstances.”

As we noted last week (PDF: 183 KB), the current environment presents
special challenges to
public companies in making and evaluating disclosures, updating prior disclosures, weighing whether to delay the issuance of earnings releases or SEC
filings,
responding to questions from analysts and institutional investors, and
managing
information flows in a world where many executives and employees are working from home. Events are unfolding rapidly, the significance of information is
difficult to
assess in real-time, and numerous market participants are understandably
hungry for
information in the current environment. In such a stressed setting,
the SEC
Enforcement Division Directors’ statement provides a timely and sensible
reminder
that companies must continue to focus on their internal controls and
take other
appropriate actions. Namely, companies should periodically remind
remotely
working executives and employees of the critical importance of controlling
flows of
information. Companies should likewise ensure that material,
non-public information
is handled appropriately and that established policies
and procedures on insider
trading are strictly followed. Updated Regulation FD training
should also be provided
virtually and note the heightened sensitivities and SEC enforcement focus on these issues.

In the complex, rapidly changing and stressful environment in which we are
now all operating, and with so many people working in unaccustomed settings, there
is a heightened risk that even well-managed companies may experience lapses in the
enforcement of well-established policies and procedures. Brief periodic reminders to
employees may go a long way toward preventing a problem from arising.

John F. Savarese, Wayne M. Carlin, and David B. Anders are partners at Wachtell, Lipton, Rosen & Katz.

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