Insider Trading Compliance During the COVID-19 Pandemic

COVID-19 Update

Date: March 25, 2020

Last week, news broke that United States Senator and Chairman of the Senate Intelligence Committee, Richard Burr, R-N.C., sold large amounts of stock in industries hard hit by the COVID-19 pandemic. According to reports, in mid-February, Burr sold approximately $1.7 million worth of shares held by himself and his spouse in industries including hospitality, restaurants, health care and drug manufacturing. The sales were reportedly made after Burr participated in closed briefings on the threat of COVID-19 and nonpublic intelligence reports warned of a likely pandemic. Less than two weeks after Burr sold the stocks, the markets began their sharp decline and experts now warn that the COVID-19 crisis will likely trigger a global recession. Since Burr sold his shares, the Dow Jones Industrial Average has plummeted over 30 percent. Several other senators were also identified as having sold substantial holdings in the weeks preceding the substantial increase in market volatility that has followed the pandemic.

Federal law, including the STOCK Act,[1] prohibits individuals from purchasing or selling a security while in the possession of material, nonpublic information (MNPI) concerning that security. The Department of Justice (DOJ) regularly investigates and prosecutes criminal insider trading cases, while the Securities and Exchange Commission (SEC) aggressively brings civil insider trading cases. In both cases, the penalties are harsh. Whether Burr’s conduct constitutes a violation of the insider trading laws is complicated (it is not clear that the information he received about the impending pandemic would meet the definition of nonpublic information because, despite the nonpublic briefings Burr received as a senator, there was a lot of public information available in mid-February about the seriousness and rapid spread of COVID-19). But Burr’s conduct – and the sharp public outcry and likely political consequences – should be a warning to business leaders already trying to juggle so much in the midst of this public health and economic crisis.

On March 16, 2020, Attorney General William Barr instructed the Department of Justice to “remain vigilant in detecting, investigating, and prosecuting wrongdoing related to the crisis.”[2] The attorney general added, “[t]he pandemic is dangerous enough without wrongdoers seeking to profit from public panic and this sort of conduct cannot be tolerated,” and instructed all U.S. Attorney’s Offices to prioritize the detection, investigation and prosecution of criminal conduct related to the pandemic, including fraud. On March 23, the co-directors of the Securities and Exchange Commission’s Division of Enforcement issued a public statement “to emphasize the importance of maintaining market integrity and following corporate controls and procedures.”[3]

Both the Department of Justice and the SEC have signaled their awareness of the potential for insider trading and fraud during the pandemic and have clearly communicated their intent to pursue such illegal conduct. For public companies, insider trading concerns are particularly acute given the status of many businesses during the pandemic. As the national response to the pandemic develops, corporate insiders may learn valuable new MNPI that has even greater value than in ordinary circumstances, and employees at various levels may have greater access to corporate reports or SEC filings that are delayed due to the pandemic. The intense market volatility, which is likely to continue, may make it even more tempting for those in possession of MNPI to act on their information.

Public companies should review their current insider trading policies and procedures and ensure they are up-to-date and communicated to all employees. Such policies should limit employees’ access to MNPI, ensure employees are aware of and understand the insider trading laws, rules and regulations, including Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and prohibit trading by employees, directly or indirectly, on the basis of MNPI. Even if public companies have up-to-date insider trading policies, in light of the COVID-19 crisis, companies should immediately remind all employees of these policies and obtain updated acknowledgements of the insider trading policies and procedures.

The potential for abuses of the insider trading laws is compounded now that many states and municipalities have ordered workers to stay home. As of March 24, approximately 163 million Americans are under lockdown orders and many businesses have implemented work-from-home and teleworking arrangements for their employees. Such arrangements increase the chances that MNPI may be possessed or discussed in shared spaces or could otherwise be improperly accessed.

Under the unique circumstances posed by work-from-home arrangements, businesses should ensure their policies address the additional risks inherent in such arrangements. These risks include: (i) disclosure of MNPI to family members or others in the home; (ii) cybers threats from unsecure networks and/or remote access platforms; and (iii) employee use of unauthorized systems or applications while accessing corporate data. To address these risks, firms should ensure employees are aware of and comply with confidentiality and related ethics policies pertinent to the protection of corporate data. In addition, firms should ensure that remote access platforms have up-to-date security patching, restrict communications concerning corporate data to firm systems, and monitor employee access to and use of firm systems.

Though the COVID-19 crisis will hopefully soon abate, individuals’ stock trading records last forever (or at least through the five-year statute of limitations on insider trading cases). Indeed, DOJ has proposed legislation that would toll the statute of limitations for all federal criminal offenses during the pendency of the national emergency.[4] Based on the DOJ and SEC’s statements about investigating fraud related to the pandemic, and their robust enforcement efforts in the wake of past natural disasters, there is no doubt that regulators will be combing through suspicious trading records for years to come. A minimal amount of attention paid to adequate insider trading compliance practices now will decrease the risk of a future government investigation and the disruption and expense that goes with it.


For more information, please contact:

Steven Block

Matthew David Ridings, CCEP

Brian Lanciault


We have assembled a firmwide multidisciplinary task force to address clients’ business and legal concerns and needs related to the COVID-19 pandemic. Please see our COVID?19 Task Force web page for additional information and resources.

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[1] The STOCK Act prohibits a member of Congress and congressional employees from trading on nonpublic information obtained through their positions.

[2] Memorandum from Attorney General William Barr, COVID-19 – Department of Justice Priorities, March 16, 2020