Managing Insider Trading Risks

---

Insider trading is the practice of trading securities by persons in possession of material, non-public information(“MNPI”) about such securities. Material information has been described by the U.S. Securities and Exchange Commission (“SEC”) as information that a reasonable investor would consider important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company’s securities. Information is non-public until it has been communicated to the market, which occurs, for example, when information has been reported to the SEC or published in the Wall Street Journal or other publications of general circulation. Other examples of information that may be non-public are: information provided to a select group of analysts that is not made available to the public; information that has not been disseminated by a company in a press release; or information received as a “tip” from a person who owes aduty of trust or confidentiality with respect to such information.

Having MNPI gives an unfair advantage to a trader, and insider trading can erode investor confidence, distort market prices, harm the reputation and integrity of the organizations and companies involved and subject the perpetrators to civil and criminal liability and other serious consequences. Civil and criminal penalties for trading based on or communicating material non-public information can be among the most severe that are dispensed by the government. A person can be subject to penalties even if he or she does not personally benefit from the violation.

Many regulated businesses are specifically required to address insider trading risks. One example of such an insider trading law is Section 204A of the Investment Advisers Act of 1940.[1] Taking into consideration the nature of the business, the statute requires that investment advisers establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent misuse of MNPI by the adviser or any person associated with the adviser. Most regulated financial institutions (in addition to advisers; banks[2], broker dealers[3] and other financial services firms) are also subject to specific laws and regulations that require them to implement controls concerning the prevention and detection of insider trading. But insider trading liability is not limited to SEC registrants or banks. All securities traders, regulated or not, are subject to potential insider trading liability, and the associated penalties.

The first section of this article briefly describes the legal basis for insider trading liability and the theories used by the principal regulator of the securities markets, the SEC, and the U.S. government’s criminal prosecutors, the Department of Justice and the U.S. Attorneys offices, to prosecute insider trading and punish offenders. The second section discusses some sources of potential MNPI that investing organizations encounter, whether specifically regulated or not. Most of the scenarios described are encountered by the so-called “buy-side”,which generally refers to private and registered funds and institutional investment advisers, wealth managers,bank fiduciary investors, and other institutional investors such as pensions, foundations, sovereign funds,family offices or other investors in the public and private markets. However, many of the same situations can come up in the context of investment banking and commercial banking, as is noted. The third section describes some of the more widely used techniques that are often used by these types of buy-side investment advisers and transactional banks alike, depending on context, to manage MNPI and insider trading risks, which

could be useful to any investing organization who may face the same or similar risks. The article concludes with recommendations that all investment organizations would be well served to heed. Recommendations include having up-to-date written policies and procedures in place to educate personnel in identifying and avoiding sources of MNPI and to manage MPNI correctly once acquired so that trading can continue. Staying vigilant, enforcing the rules and policies and consistently and clearly documenting any remediation practices are the key to compliance and to a successful response to any SEC investigation.

1. Theories used to prosecute insider trading

The legal basis for insider trading is based on interpretations of the anti-fraud provisions in Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Courts impose liability for insider trading based on prosecutions typically led by the SEC (civil prosecutions only) or a U.S. Attorney’s Office (criminal prosecutions). In the United States, with some limited exceptions, trading by an “insider,” while in possession of MNPI is illegal. The definition of “insider” can include officers, directors and employees of a company, and even those “temporary insiders” who briefly enter into a relationship with a company, in which they are given access to information solely for the company’s purposes. Such temporary insiders can include attorneys, accountants, consultants, and lenders (such as banks or other entities that obtain information about a company’s finances).[4]

Traditional theories of insider trading. Trading by non-insiders when in possession of MNPI is illegal when disclosure or use of such MNPI is considered a breach of the individual’s fiduciary duty or contractual requirement, where the information was disclosed to the non-insider in violation of an insider’s duty to keep it confidential, or the information was “misappropriated.” Such a duty can arise when a person has a confidential relationship with the company, such as becoming a service provider to the company (e.g. attorneys, accountants). A person acquires a fiduciary duty to the company’s shareholders as a “tippee” if the person is aware or should have been aware that they have been given confidential information by an insider who has violated their fiduciary duty to the company, and the tippee knew that the insider disclosed confidential information in exchange for a personal benefit.[5] Finally, a person who trades while in possession of MNPI that was stolen or misappropriated from any other person in breach of a duty of trust or confidence owed to the source of the information, can also be charged with insider trading.[6]

Emerging theories. The SEC continuously expands their efforts and the law is evolving with individual fact patterns. For example, in one recent case, SEC v. Panuwat (N.D. Cal. 2024) the SEC successfully argued a new theory of insider trading referred to as “shadow” insider trading. In Panuwat, the SEC sought to show a “market connection” between two companies. The theory comes into play where there is a company, Company A, whose MNPI is accessed, and then there is another company, Company B, whose securities are traded by the person who accessed the MNPI about Company A. In the case, the SEC was successful in prosecuting the person who obtained MNPI about Company A and used it to trade Company B because there was found to be a “market connection” between the two companies. In other words, the companies were found to be similar, and in the same industry, such that Company B was likely to be affected by the MNPI about Company A, when such MNPI was made public. This new “market connection” theory expands the way the government could bring insider trading prosecutions going forward.

2. Commonly encountered sources of MNPI in the investment process

Before making investments, buy-side investors, like wealth and fund managers as well as other institutional or family office investors, naturally should conduct thorough research and analysis on the companies in which they may invest. Core objectives of many fundamental research processes include verifying the source and reliability of any information that is received, and avoiding relying on rumors, tips, or speculation. Importantly and logically, any such research process should also be designed to avoid sourcing and then trading on information that could be MNPI, that is, if they wish to avoid prosecution and reputation risk.[7]  Organizations should analyze the sources of data used in their research and know when those sources present or increase the risk of encountering MNPI.

Not only do buy-side investor organizations encounter non-public information, but investment bankers and corporate transactional bankers also encounter such information. A good first step in developing the related policies and procedures for any organization that needs to manage insider trading risks would be to catalog those situations where non-public information is likely to be obtained. Below is a discussion of several such potential situations.

Expert networks/other industry sources. As part of their research process, buy-side investment staff may consult with industry experts, including consultations with political participants or government sources(lobbyists, political intelligence firms, or government officials themselves) relative to public issuances or regarding public companies regulated by government agencies. These sources, especially paid consultants, could have a conflict of interest with their other professional, legal, or contractual obligations. Their participation in discussions with buy-side investors could (even if inadvertent) can sometimes cause them to disclose confidential or proprietary information (including trade secrets) not owned exclusively by them. Such disclosure could, in certain circumstances, constitute the communication of MNPI that the source has a duty not to disclose. Experts are often sourced through expert network platforms or introduced by sell side broker dealers. Many times, the expert network providers or sell side broker dealers properly orient and train their experts to avoid disclosure of MNPI to buy-side investor clients. It is prudent for the buy-side investor organization using such providers to conduct due diligence on these providers, including, for example, asking these providers to provide or describe their compliance practices and keep that information on file. Buy-side investment staff engaged in research on companies in the health and medical related fields should be aware of enhanced risks associated with using consultants or other experts who are actively participating in any non-public trials, especially related to a company whose security they would consider trading.[8]

Meeting with company insiders. Communicating with corporate executives can involve MNPI risks. One way to reduce risk of inadvertent receipt of MNPI is to schedule or coordinate all initial communications with corporate executives with a representative of a company’s investor relations department or via a broker dealer with experience in providing corporate access. These parties are typically trained (and typically provide training to the executives they are making available) to make sure MNPI is not conveyed. Corporate insiders and their public relations personnel are typically trained as required by Regulation FD[9] to make sure MNPI is not conveyed. Other laws and rule requiring government personnel to keep information about their activities confidential have a similar effect relative to government securities or information that will affect market prices of many types of assets, including securities.[10] Investment staff who engage in communications with corporate executives, or government officials, especially when outside the context of a Regulation FD or government approved disclosure process, will benefit from being cognizant of the enhanced risk of receiving MNPI. Once an initial communication scheduled or coordinated by a representative of a company’s investor relations department has taken place, some entities will permit subsequent communications to take place without the involvement of the company’s investor relations department so long as they follow that organization’s policies and procedures. Communications with corporate executives initiated through other channels should probably be approved by the organization’s legal or compliance departments.

Discussions with other investors. When communicating with sub-advisers or managers of funds in which they have invested, investors may come into possession of information that may either be MNPI or that would potentially affect the price of securities. Advisers often meet and attend conferences like any other professionals, and sometimes share knowledge of a specific investment, theme, or thesis, perhaps because it is a condition of participating in an idea meeting or an idea sharing website. In connection with these interactions, investors may sometimes disclose certain information on their investments, research and insights to other investors. While these interactions and disclosures might be permissible[11], investors should try to avoid disclosing or receiving: (1) information that could be considered MNPI or that either party has otherwise agreed with a third party to keep confidential; (2) specific information relating to either organization’s trading of securities, including the timing and/or sizing of trades; (3) information that could be detrimental to either firm’s business interests, such as disclosure of information on a short position where there is limited capacity for borrowing or information on intentions for future proxy votes. As a result, talking about investments that have already been made or buying or selling programs that have already played out may present a lower risk of receiving/providing MNPI. It may be best to keep forward-looking discussions at the strategy and market level, rather than discussing specific companies that are potential investments or trades that have not yet happened.

Activities away from the office. All buy-side investor investors (whether investment advisers, banks or other institutional investors on the buy-side,) as well as broker dealers, and banks involved in other business that make it likely that they may gain access to MNPI, should train staff to limit the disclosure of any non-public information outside of the work environment only to people who have the need to know, and also to avoid putting themselves in a position to receive any such information when not necessary. Inadvertent disclosure or receipt of MNPI outside of the legally permitted scope can take place in any number of everyday communications, like social media, chat rooms, blogs, or personal emails. Staff should be instructed to avoid engaging in any conversations or activities that may involve or reveal material non-public information and politely decline any invitations or offers that may compromise their own integrity or judgment, be it in social or professional settings or even at family events. They should also avoid discussing or accessing sensitive information in public places, such as cafes, airports, or hotels, where they may be overheard or hacked. Organizations should consider applying their in-office clean desk and information security protocols to users􀀠who will work remotely.

Use of data rooms and non-disclosure agreements. A common tool used by fund managers, investment bankers and lenders is a “data room” which is best described as an electronic portal that gives a potential investor or buyer, or lender or borrower access to information about a potential investment opportunity, like a co-investment, a private sale of securities or a portfolio of loans, for example, or other type of deal. Examples of information found in the data room are financial and business information about companies, or loans made by a firm, fund or other lender, and information about borrowers. Such access may often be accompanied by the execution of non-disclosure agreements with covenants that govern what the recipient is allowed to do with the information obtained. Sometimes, the data rooms allow users to access “public side” and “private side” information, at the potential buyer’s and/or transactor’s option. The public side is typically intended to contain only publicly available information. If investors access the “private” data room, they may obtain MNPI and they will likely be restricted from trading in that company as a result. If investors access the “private” data room, they can become in possession of MNPI about a public company, for example. Some creators and users􀀠of these “data rooms” may not be aware of the implications of using such private side information. Users of data rooms who are active investors in the public securities market should be aware that they may become unable to sell securities they already own, simply by coming into possession of MNPI. Users of data rooms who are also active investors in securities, may seek to employ “information barriers” (discussed in more detail below) to separate the parts of an organization engaged in so-called “public-side” investment activities from those engaged in other activities who may more routinely have access to MNPI, such as when lending or making co-investments on a private basis in particular companies.

Making loans or obtaining information about loans. Firms that engage in lending are often in receipt of material financial information about an issuer that could be MNPI as a part of the underwriting process, and they may obtain covenants from the borrowers to provide further information; for example, if the borrower’s finances deteriorate. Firms that buy loans, whether they be funds or other banks or non-bank lenders, may obtain this information when buying the loans. This information is best kept in a manner that limits access to those with a need to know. When a financial services organization invests in both portfolios of loans and securities and has the same personnel managing both loans and securities, it may restrict its staff’s ability to trade in the securities of the borrower company because they conclude they have MNPI. In these situations,  setting up information barriers is not practical. As a result, investors in loan portfolios may wish to choose carefully which securities portfolio manager gets access to what information about such companies. For example, an investor like a hedge fund or investment fund, may wish to choose to be a public-side user of any data rooms (when that option is offered) if it wants to potentially have the option to trade a borrower’s securities while also contemplating a transaction that would result in them being a lender to such borrower.

Participation in portfolio company governance or limited partner advisory committee (“LPAC”) activities. Buy-side investors in private equity, or public equity, may have roles with the underlying companies in which their organizations, or with organizations the funds in which they invest, invest. Sitting on an issuer’s Board orparticipating on an advisory or creditors committee can cause personnel of the buy-side investing organizationto encounter MNPI. A common example is a private equity, venture capital or other institutional investor’s personnel serving as a portfolio company’s officer or board member. These staff members owe duties both to the entity that employs them and the portfolio company and its investors, and these activities present a heightened risk of access to MNPI. When investors are asked to serve on an investment fund’s LPAC, there is once again the enhanced potential that the fund in question will provide information that could be MNPI which may impact whether the parties who receive that information can transact in securities held or issued by the fund or fund manager. Organizations should carefully weigh the risks they assume when allowing personnel to act in such capacities, as the individual may learn material proprietary information about the fund or the manager, or portfolio company, and such a selective disclosure would prevent the fund or investor they represent from being able to take actions, like redeem from the fund or transact in the portfolio company securities. If they risk receiving MNPI, organizations may wish to consider employing one or more of the techniques discussed below such as erecting an information barrier around that person, or placing the securities on a restricted list, and in certain cases avoiding personal investments in the same companies.

Use of alternative data. Some buy-side investors with employ data driven investment strategies (sometimes called systematic or quantitative strategies, for example) that may use Artificial Intelligence (“AI”) or other sources of so-called alternative data for investing. Data driven investment strategies are not new, but with the advancement of AI they will only proliferate more. Organizations that use data miners and data aggregators should carefully examine such services providers’ policies and procedures to be sure they seek to avoid the inclusion of MNPI in the analytical products they use. In 2021, the SEC settled an enforcement action against App Annie, Inc., an alternative data provider for the mobile app industry. The SEC found that App Annie made misrepresentations both to data sources in connection with the collection of data, and to investment firm subscribers regarding the data underlying its product. The enforcement proceedings may stretch the SEC’s enforcement authority in significant ways but leaves unanswered many questions that will be critical as the role of big data grows. This suggests that users of data should query the sources and type of data that providers are providing, to be sure they are not intentionally (or unintentionally) including MNPI.

3.Techniques to manage insider trading risk

Whether obtained inadvertently or on purpose, from time-to-time organizations who invest will obtain MNPI.The mere failure to maintain policies and procedures to prevent mis-use of MNPI can lead to enforcement activity for regulated firms, and failure to monitor the firm’s compliance with them can also lead to same.[12] Given this fact, what can organizations do about it? Below, we describe some of the more widely used techniques that have been used that can help investment advisers, broker dealers and banks as well as other buy-side investors or transactional bankers to manage MNPI and insider trading risks[13]. These same practices could be useful to other institutional investors or family offices who may face similar risks.

Train staff on insider trading. Organizations would be wise to consider training their staff in the law of insider trading and to implement policies on the handling of MNPI. This training should aim to help staff recognize insider trading risks, identify material non-public information, and limit its access to authorized personnel.Training can include guidance to sensitize personnel on any of the situations where MNPI may be encountered, such as described in the second part of this article, and what to do if and when such an event takes place. Finally, organizations should consider making staff aware that they are to refrain from recommending or inducing others to trade securities about which they have MNPI, even if they do not share the information in question, as they may be liable for the actions of the tippees. Firms that engage in research or business activities such as those described above that put the firm’s personnel in a position likely to obtain information about companies that have a market connection to other companies, should consider educating personnel on the “market connection theory” of insider trading, both in text of their policies and procedures, and in training conducted on the topic.

Reporting and evaluation of MNPI or insider trading. Consider instructing personnel to promptly report potential receipt of MNPI or any suspicions or evidence of insider trading as soon as possible to a designated compliance officers or legal counsel. Staff should be on notice that they must also cooperate fully with any investigations or inquiries and preserve any relevant records or documents. Individuals responsible for administration of such a compliance program should expend sufficient time to determine whether the information is in fact MNPI, or whether trading should be curtailed. Organizations should account for the fact that the SEC or other enforcement bodies’ judgments about the materiality of information may be made after a possible transaction has been completed. Ignorance is not bliss. An organization can be faulted for failing to probe more rigorously as to whether it possessed MNPI. In the event that personnel inadvertently come into possession of such information, consider ensuring sufficient review to determine what effect, if any, possession of the MNPI has on the organization’s investment strategy, and take such remedial action as is necessary. Such remedial action may include erecting information barriers or placing the issuer on a restricted list as discussed below. To manage this new risk, investment organizations could add compliance processes designed to prevent trading when in possession of such MNPI via a market connection. Basic procedures such as considering requiring personnel to report when they believe they have MNPI on an issuer and whether such company may also have a market connection to another company or companies, could be relatively easy to add to an insider trading policy.

Maintain restricted lists. Restricted lists are a tool that buy-side investors or transaction banks can use to record the specific issuers (and specific securities issued by them) and internal staff who are in possession of MNPI about them or who are otherwise insiders. Such lists may record when MNPI was obtained or when information ceases to be MNPI. If such lists are used, organizations may wish to educate their personnel about their obligations and responsibilities regarding the handling of such information. For example, specifically outlining that trading in affected securities may resume only when legal or compliance staff determines that the information has become public and/or no longer material and the name is removed from the list. Consider updating lists regularly, for example to indicate the date that trading was allowed to resume, and the reason for the resumption, or removal from the list. Organizations may also define and apply blackout periods during which trading in securities is prohibited, such as before or after the firm has completed trades in a specific security, or based on when the information of financial results, earnings announcements, material events or other MNPI is released to the public. In the event of an investigation, it is likely that restricted lists and related procedures would have to be provided to and evaluated by securities enforcement regulators to determine whether an organization’s practices were reasonable to deter insider trading. When a market connection between two securities is reported or detected through other means, firms may wish to consider how to implement restrictions by including the connected issuer names on restricted lists, stopping trades using interdiction technology, or conducting post trade surveillance on transactions in the securities of such issuers.

Perform background checks. Many organizations conduct background checks and reference checks on any job candidates who may have access to MNPI (as well as for other reasons) and document their work history and qualifications. Employees should be asked to sign confidentiality agreements and disclose any potential conflicts of interest or affiliations with other companies or entities. Questionnaires are often a useful tool to elicit this type of information. 

Implement a personal securities trading policy. Most regulated advisers, broker dealers or banks are required to do implement personal trading policies, but any buy-side organization, particularly one that determines it may have access to MNPI, should consider adopting a policy that outlines guidelines for employee trading in their own or related securities accounts and the consequences for violations of insider trading laws. In addition to adherence to restrictions on trading when the organization may have MNPI, the policy can include blackout periods when trading is prohibited (such as while a company is being considered for material investment, or for a period after the investment has been made, to allow the trades to become public information), the reporting requirements for disclosing personal trading activities, and a pre-clearance process for obtaining approval for trading securities that are being considered for investment or that have been placed on restricted lists.

Monitor trading activities against restricted or other lists. Depending on their risks, organizations should review trading periodically to ensure that their personnel are aware of and complying with listed restrictions. Such a review could include comparing personal trades with the trading patterns and price movements of portfolio securities. Organizations may also consider whether to review the emails of affected personnel around trading of securities or consider conducting keyword searches of all personnel e-mails for the presence of MNPI. There is a growing movement to attempt to use data analytics and artificial intelligence tools to detect anomalies or irregularities that may indicate insider trading. If conducted, the staff that approve pre-clearance requests or conduct reviews should consider documenting their activities to be able to demonstrate robust compliance risk management.

Monitor research focused meetings. To mitigate MNPI risks, investment advisers that conduct them have been encouraged to require that in-person meetings or telephone calls with company insiders, experts or government officials be documented in a centralized log, calendar or other system that records the date ,nature of the meeting or call, the names and titles of those that participated in the meeting or call, and a brief description of the matters discussed. Sometimes, a record or minutes are kept with sufficient detail to enable a third party (or internal legal and compliance staff) to conclude that MNPI was not disclosed in the meeting. Periodic sample-based review of these minutes, notes and/or other transcripts of these meetings, or in-person or telephonic chaperoning of the meetings by legal or compliance staff, can also be considered effective supervisory techniques for an investment organization, resources permitting.

Consider using information barriers. “Information barriers” are literal or figurative constructs to segregate parts of a firm engaged in securities advisory, sales and trading activities of public securities (so-called “public-side” activities) from other parts of the firm that may be more likely to have access to MNPI, such as investment banking or commercial lending (so-called “private-side” activities). Information barriers are ‘walls’ constructed around individuals or groups who have access to MNPI with respect to companies that may be on a “restricted list.” The purpose of the wall is to make sure that any MNPI accessible to people on the one side of the wall does not restrict those on the other side who do not have MNPI from transacting in issuers that may otherwise be on a “restricted list.” For example, if only one or two people had received MNPI, they could potentially be walled off from others, so that such others can continue to transact in securities of the issuer about which the walled-off individuals have MNPI. Ancillary techniques here include initially asking the affected personnel to execute written acknowledgements that they will not disclose the potential MNPI to others, including colleagues, and periodically asking the affected personnel to provide certifications that they have not improperly shared the MNPI. In addition, affected personnel can be subject to enhanced information security practices such as creating information barriers between their physical office space and those of others, or isolation of files and information contained in computer systems, until the information is no longer MNPI. Proactively, a shared office space policy or clean desk policy outlining appropriate methods of protecting confidential information (including MNPI) is often a good practice to help prevent inadvertent disclosure o fMNPI.

Conclusion

While some firms are required by regulation to do so, buy-side investment organizations of all types can otherwise benefit from assessing their insider trading risks and implementing applicable risk-based policies and procedures. Once fully appreciative of the risks, firms can consider implementing written policies and procedures to identify and educate personnel on the likely sources of MNPI that may be encountered in their business, implement techniques to manage MNPI and trading by the organization and its personnel, enforce and update those policies and procedures consistently, and clearly document efforts to remediate issues.

[1]See the second section of this article concerning the legal basis used by the federal government to prosecute insider trading under theSecurities Act generally within the US. With regard to how investment advisers are regulated, see also, SEC Rule 204A-1 and “InvestmentAdviser Code of Ethics, Investment Advisers Act Release No. 2256” (July 2, 2004), available at http://www.sec.gov/rules/final/finalarchive/finalarchive2004.shtml (“We … remind advisers that they must maintain and enforce policies and procedures to prevent the misuse of material, non-public information, which we believe includes misuse of material, non-public information about the adviser’s securities recommendations, and client securities holdings and transaction.”).

[2]Banks are generally required by their regulators to comply with the Securities Act restrictions on Insider Trading, which is enforced by wayof the supervision by the various federal and state bank regulators. Banks are subject to oversight and examinations and build compliance programs that seek to adopt procedures that are described in manuals containing regulatory expectations for banks and trust companies relative to securities related fiduciary and trust related activities. The practices generally encouraged for banks engaged in securities and investment advisory activities incorporate many of the best practices of the SEC regulated securities industry. See, e.g., OCC Investment Management Services Manual (2001, last amended 2025).

[3]Broker Dealers are required by the Securities Exchange Act of 1934 and SEC Rule 10b-5, and the Insider Trading and Securities Fraud Enforcement Act of 1988, to maintain procedures to prevent the misuse of material nonpublic information. Most broker dealers are required to be members of Financial Industry Regulatory Authority, and as such are subject to FINRA Rules, such as Rule 3110 (d) that also has specific requirements regarding broker-dealer procedures that should be reasonably designed to prevent insider trading under the aforementioned Acts.

[4]e.g., U.S. v. Falcone (2d Cir. 2001) (§ 10(b) of the Exchange Act is violated when a corporate insider, such as an officer of the corporation, trades in the securities of his or her corporation on the basis of material, nonpublic information.)

[5]e.g., Dirks v. S.E.C., (U.S. S. Ct. 1983) (Insider may also violate § 10(b) under the traditional theory by tipping a corporate outsider, to induce such outsider to trade based on the MNPI, where the insider expects to benefit; and tippee may be held liable they know that tipper has breached fiduciary duty by disclosing.)

[6]e.g., U.S. v. Teicher (2d Cir. 1993) (10b-5 is violated when one misappropriates MNPI in breach of a fiduciary duty or similar relationship of trust and confidence.)

[7]One of the more famous cases of research processes that were intentionally seeking MNPI is the Galleon case. The facts of the case include details that showed the bad intent of the traders involved. https://www.sec.gov/enforcement-litigation/litigation-releases/lr-22042

[8]See, e.g.; https://www.sec.gov/newsroom/press-releases/2012-2012-237htm (SEC charges hedge fund who used expert that was involved in clinical trial to obtain MNPI and traded); https://www.sec.gov/newsroom/press-releases/2021-94 (SEC charges pharmaceutical executive for trading on MNPI).

[9]Regulation FD: https://www.law.cornell.edu/cfr/text/17/part-243; See e.g., Special Study: Regulation Fair Disclosure Revisited

[10]One example is the confidentiality required of members of the Federal Reserve Board and its staff. See, e.g., Federal Reserve Board –Ethics and Values Another example is the confidentiality required of bank examination reports, which at their extreme can represent MNPI about the bank ‘s financial conditions. “All confidential supervisory information shall be the property of the Federal banking agency that created or requested the information and shall be privileged from disclosure to any other person.” reports from banks. “Non-public OCCinformation” includes examination records. 12 C.F.R. § 4.32(b)(1).

[11]For example, information filed by institutional managers who are required to file SEC Form 13F, once filed, is public information. But, prior to filling such information, buy-side investors should consider whether information about investments that have been made by an organization, but not yet made public, or potentially future investment decisions they are contemplating, if made public, would potentially beMNPI. See Form 13F -Reports Filed by Institutional Investment Managers | Investor.gov

[12]For recent examples, see e.g., In the Matter of Marathon Asset Management, L.P., Inv. Advisers Act Rel. No. 6737 (Sept. 30, 2024) (Adviser found to have failed to adopt procedures to prevent the misuse of MNPI relating to the adviser’s participation on ad hoc creditors’ committees); In the Matter of Sound Point Capital Management, LP, Inv. Advisers Act Rel. No. 6666 (Aug. 26, 2024) (Adviser failed to establish, maintain and enforce written policies and procedures reasonably designed to prevent the misuse of MNPI concerning its trading of collateralized loan obligations).

[13]A summary of certain MNPI issues faced by advisers registered with the SEC was provided by the SEC Staff on April 26, 2022. See Investment Adviser MNPI Compliance Issues, code-ethics-risk-alert.pdf

Disclaimer: The information provided in this article and any accompanying materials is for general informational purposes only and is not intended as professional compliance or legal advice. The views expressed do not necessarily reflect the opinions or positions of the authors and are not intended to express the views of their employers or NSCP. NSCP assumes no responsibility or liability for the content of this article or any accompanying materials, or for any errors or omissions. No representation or warranty, express or implied, is made as to the accuracy, completeness, or timeliness of the information provided. Readers should consult with qualified professionals regarding all regulatory, compliance, or legal issues.