The NASPP Blog

A few weeks ago I blogged about a potential insider trading loophole relative to 10b5-1 plans. While I don’t have any updates on that front today, I do have word of other insider trading related buzz. This time, it relates to our branches of government. Last week Congress quietly passed a modification to the STOCK Act, effectively eliminating trading disclosure requirements for most high-ranking government staffers that were previously covered under the Act. On Monday, April 15th, President Obama followed suit by signing the modification into law.

I’m Not Sure I’ve Even Heard of the STOCK Act

First things first – what’s the STOCK Act? The STOCK Act (aka the Stop Trading on Congressional Knowledge Act) was passed a year ago in April 2012. It explicitly states that the members of Congress and their staffs are not exempt from the same insider trading prohibitions that apply to everyone else. The law basically mandates that Congress and several thousand high ranking government staffers disclose certain financial information, including stock trades, to an online searchable database. Prior to the Act, such disclosures were not easily accessed by the public – it usually required an in person request to obtain this information.

Sounds Reasonable – What’s the Uproar About?

The changes to the Act preserved the conclusion that insider trading is still prohibited for the same people (Congress, etc.). Some ruffling of feathers comes from what has changed, and that is the disclosure elements of the Act. The original version of the Act requires all affected people to make disclosures to a searchable online database – the idea being more publicly accessible disclosures. The modification to the Act now only requires those online searchable disclosures to be made by the President, Vice-President, Congress and candidates for Congress, and some other other Presidential and Senate-appointed positions. Absent from this disclosure requirement are the thousands of staffers who were previously covered. Activists are calling this an “epic failure” of the original intent of the STOCK Act, which was to make trading by those positions accessible to the public, and allow watchdog agencies policing ability over potential insider trading. Supporters of the modification say that putting financial information for thousands of government employees online, where it can be so easily accessed by the public, is not in our national security best interests.

Why Do I Care?

Regardless of which side of the fence you stand on this issue, sometimes we can find the impact in an overall message or theme. It’s been weeks and weeks of consistency in my Google Alerts – insider trading feels like a topic that’s warming up. The SEC has been in an aggressive mode of cracking down on insider trading, and, as discussed a few weeks ago, there is potential for new types of insider trading investigations – like that into 10b5-1 trading plans. It’s just my opinion, but I somehow think that all of these events keep putting the spotlight onto insider trading, which could mean a new era of scrutiny. While the government keeps refining their own policies around insider trading, we have the opportunity to do the same. If an investigation ever comes your way, you’ll want to be certain that you’ve followed your pre-clearance procedures and disclosure requirements to the “T”.

I’d venture to say the trigger for an insider trading investigation almost never originates in the stock plan group. However, if trades in your company’s stock are ever the subject of an SEC investigation, you can bet there’s going to be a microscope on the company to determine the policies and practices around prevention. I would recommend adding an audit and policy/procedure evaluation of your insider trading prevention practices to your list of 2013 objectives, if you haven’t done so already. It’s always better to be ahead of the curve when it comes to areas of compliance. Our Insider portal offers an overview of the various regulations, as well as sample documents.

-Jennifer