The NASPP Blog

Over the years I’ve covered many forms of insider trading scenarios and associated consequences. Of particular fascination to me have been cases involving employees trading in their own company’s stock. Maybe it’s because there are obvious policies in place to prevent this that it seems more egregious, or maybe it’s the level of betrayal (an inside job). I often think I’ve seen it all, and then some new twist surfaces. In today’s blog I’ll cover a recent SEC enforcement action against a former Expedia employee.

You Will Get Caught

In the Expedia case, a former computer support technician secretly accessed senior executives’ emails for confidential information. Reuters reports that he pleaded guilty to one criminal count of securities fraud, agreed to pay back his former company the nearly $82,000 that it spent to investigate the computer intrusions, and settled with the SEC for close to $376,000 (“Ex-Expedia IT Employee Pleads Guilty to Insider Trading,” Nate Raymond, Dec. 5). According to the complaint filed by the SEC, the technician used the stolen information to trade Expedia securities in advance of seven Expedia earnings announcements and two Expedia agreement-related announcements, resulting in unlawful profits of nearly $350,000.

Insider trading enforcement actions provide important learning opportunities for companies who are engaged in an ongoing quest to educate employees and prevent these types of crimes. It seems to me that many of these acts of insider trading are ones born of circumstance opportunity (overhearing a conversation involving material, non-public information, for example, or, having access to certain information or functions through the nature of one’s job). It’s impossible to eliminate every single potential opportunity to cross paths with inside information – and many companies work to educate employees about not giving in to the temptation to share the information or use it for financial gain. I know I’ve touted the message “Don’t try it. You will get caught.”  Yet, some employees still try it, and they do get caught.

The former Expedia employee’s case raises the question – what can companies learn about further protecting access to vulnerable information from all angles? Or, is it not about better protecting the information, but further educating the employees about the realities of the consequences for insider trading? In recent years I’ve been impressed with the SEC’s advancements in technology, particularly in identifying trades that warrant further investigation. With all the progress in technology, insider trading is a low hanging fruit for the SEC. If you’re not talking to employees about some of the recent enforcement actions for insider trading and the mechanisms the SEC is using to track down these trades, now’s a good time to start. Case studies can be excellent teaching tools.

Why Do People Commit White Collar Crimes?

In the latest edition of The NASPP Advisor (“Insider Trading and Rule 10b5-1 Plans,” January/February 2017), we suggest that companies who are looking to refresh or redesign their programs for preventing insider trading read an interview of Harvard Business School professor Eugene Soltes in the December issue of Human Resource Executive (“Good Intentions, Bad Decisions,” pages 18–19). The professor recently wrote a book entitled Why They Do It—Inside the Mind of the White-Collar Criminal. In the interview, he shares some of his insights into how intelligent and ambitious executives can sometimes fall into traps that lead to criminal acts with “terrible consequences for their company, those around them, and themselves.” For example, executives are used to decisions and activities in business that can be gray or murky, so they need to know when their actions cross lines that lead to “serious consequences.” These insights may be useful for HR professionals who are working to discourage such mistakes among employees and executives.

-Jenn