Can you trade with knowledge of a whistleblower complaint? A recent US lawsuit is a helpful reminder for insiders that they need to carefully consider the materiality of known facts in the light of whistleblower allegations before engaging in trading.
Takeaways
Insiders should be cautious before trading in the company’s securities following receipt of a whistleblower complaint. It can be difficult to assess the merits and materiality of allegations in a whistleblower complaint without an appropriate investigation. Even then, there is no due diligence defence to insider trading, although the extent of diligence performed to determine the merits and materiality of allegations in a whistleblower complaint could be relevant when a court or tribunal is assessing the appropriate sanctions against an insider found to have committed insider trading. Insiders should also be mindful of prohibitions in the company’s trading blackout policy, which will be a relevant consideration for regulators looking at events in hindsight.
Recent litigation
A Meta Platforms Inc. (Meta) shareholder recently filed litigation in California federal court alleging, among other things, that Meta’s founder engaged in more than $2.5 billion of insider trading while in possession of material non-public information that subsequently became public and negatively impacted the company’s share price in the secondary market.[1] The plaintiff alleges that the founder knew that representations made in Meta’s...
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