Compliance Programs for Insider Trading

Abstract

Since 1988, organizations have focused greater attention on compliance programs designed to prevent insider trading by their personnel. In that year, the Insider Trading and Securities Fraud Enforcement Act (ITSFEA) was enacted into law. Certainly, insider trading was a concern to organizations before that legislation, but the 1988 Act increased an organization's potential liability for the insider trading of its employees and imposed an affirmative duty on broker-dealers and investment advisors to maintain reasonably effective written compliance programs.

This article examines the compliance programs that different organizations have implemented in response to the new liability framework. Specifically, the article will review compliance programs that have been suggested and adopted in three different contexts: professional firms, with an emphasis on law and accounting firms, financial intermediaries such as broker-dealers, investment companies, investment advisors, and banks, and publicly-held companies. This article proposes elements of an insider trading compliance program that should be considered by any organization whose business merits a compliance program, and it recommends specific measures that should be adopted by organizations within the three contexts mentioned above.

Keywords: Business Organizations, Insider Trading, Securities Law, Fraud, Remedies, Investment banking, Broker-dealer policies, Conflicts of interest