Insider Trading: New SEC Rules And An Important New Case

Co-written by Karen Y. Bitar

On August 10, 2000, the SEC adopted Rule 10b5-1 to codify its position that any corporate insider who trades while in possession of material nonpublic information is liable for insider trading without any finding, whether by direct evidence or with the benefit of an inference, that he actually used the information. The SEC proposed the Rule in response to a split of authority amongst the Circuits as to whether insider trading liability requires that the insider "use," rather than merely "possess," any confidential non-public information. While providing in the new rule that mere possession of confidential non-public information generally will be enough to incur insider trading liability, the SEC included in the proposed rule several exceptions in the form of affirmative defenses.