Illegal insider trading can expose a company and its leadership to severe legal, financial, and reputational consequences. A well-structured insider trading policy helps protect the company by establishing clear expectations and discouraging improper conduct.

The SEC has published guidance outlining best practices for companies developing insider trading policies.

Who and What Is Covered

An insider trading policy should clearly identify who is subject to the rules and what types of activities are restricted. SEC Rule 10b-5 prohibits corporate insiders from using confidential corporate information to trade securities for personal gain.

Covered individuals may include:

• Corporate officers and directors;
• Employees with access to sensitive information;
• Consultants and contractors;
• Significant shareholders;
• Family members and household residents of insiders.

The rule also prohibits “tipping,” which occurs when insiders share confidential information with third parties who then use that information to trade securities.

A company’s policy should summarize relevant federal securities laws—including the Securities Exchange Act of 1934 and SEC Rule 10b-5—and explain how insiders may trade securities while remaining compliant with these regulations.

Defining Key Terms

Clear definitions help employees understand what information and conduct may create insider trading risks. Important terms typically addressed in the policy include:

Material Information: Information that could reasonably affect the value of the company’s securities or influence an investor’s decision to buy, sell, or hold stock. Examples include:

• Financial projections;
• Proposed mergers or acquisitions;
• Significant new products or services;
• Major corporate transactions.

Non-Public Information: Information that has not yet been widely disseminated to the public or fully absorbed by the market.

Insider: Any individual who has access to material non-public information due to their relationship with the company, including officers, directors, large shareholders, and individuals who receive confidential tips.

Trading Restrictions and Procedures

An insider trading policy should establish clear rules governing when and how insiders may trade company securities.

Common procedures include:

Blackout Periods: Pre-determined periods during which certain executives and directors may not trade securities, such as around quarterly earnings announcements or other major corporate events.

Event-Specific Trading Restrictions: Temporary restrictions imposed when the company is involved in confidential transactions such as merger negotiations or strategic business developments.

Pre-Clearance Requirements: Directors, officers, and employees with access to confidential information may be required to obtain approval from a designated compliance officer before trading company securities.

Compliance, Enforcement, and Penalties

An effective insider trading policy must address enforcement mechanisms and the consequences of violations.

Key components include:

Designated Compliance Officer: A specific individual—often the company’s general counsel—responsible for administering the policy and answering compliance questions.

Reporting Violations: A confidential reporting channel allowing employees to report suspected violations without fear of retaliation.

Penalties: Violations may result in serious consequences, including:

• Disciplinary action or termination of employment;
• Civil enforcement actions by regulatory authorities;
• Criminal prosecution and imprisonment.

Insider trading penalties can be severe and may include:

• Up to 20 years imprisonment;
• Criminal fines of up to $5 million;
• Civil penalties of up to three times the profits gained or losses avoided.

Implementation and Best Practices

For an insider trading policy to be effective, it must be properly implemented and communicated throughout the organization.

Best practices include:

• Legal Review: Have the policy drafted or reviewed by experienced securities counsel.
• Employee Training: Conduct regular training sessions for employees, especially those with access to sensitive information.
• Monitoring Systems: Track trading activity to detect unusual or suspicious patterns.
• Clear Communication: Provide employees with electronic access to the policy and distribute written copies to directors and senior management.
• Regular Updates: Revise the policy as the company grows or transitions from a private company to a publicly traded entity.

Why Legal Guidance Matters

As companies grow and evolve, insider trading risks and compliance requirements may also change. Maintaining a clear and enforceable insider trading policy helps protect the company and its leadership from significant legal exposure.

The attorneys at Corporate Securities Legal LLP assist companies in developing insider trading policies, implementing compliance programs, and navigating federal securities regulations.

Contact Corporate Securities Legal LLP to ensure your company’s insider trading policies remain compliant with current securities laws and regulatory expectations.

Securities market integrity refers to the fairness, transparency, and honesty of the U.S. financial markets. Following widespread corruption that led to the stock market crash of 1929, Congress enacted the Securities Act of 1933 and the Securities Exchange Act of 1934 to curb abusive practices and restore investor confidence.

These laws mandate truthful disclosure and prohibit deceptive conduct in connection with the offer, sale, and trading of securities. The U.S. Securities and Exchange Commission (SEC) enforces these statutes to ensure investors can rely on the integrity of the securities markets for the benefit of the public as a whole.

Ongoing Abuses in the Securities Markets

Despite this regulatory framework, abuses continue to occur. A recent and notable example illustrates how the SEC actively enforces market integrity when disclosure obligations are violated.

On January 27, 2026, the SEC settled a significant enforcement action against Archer-Daniels-Midland Company (ADM), the Chicago-based global grain trader, along with certain former executives. The misconduct spanned approximately seven years and involved materially inflating the performance of a key business segment that failed to meet operating profit targets.

In parallel, a class action lawsuit filed on January 24, 2026, seeks to recover approximately $8.8 billion in investor losses, alleging ADM made “false and misleading statements” regarding its financial performance.

SEC Enforcement Perspective

In announcing the settlement, Judge Margaret A. Ryan, Director of the SEC’s Division of Enforcement, emphasized the agency’s role in protecting investors and markets:

“Transparent and honest disclosure are key to maintaining market integrity, so when ADM misled its investors, the SEC stepped in to protect them and the market. The SEC is steadfast in its commitment to rooting out fraud and holding accountable wrongdoers, while also engaging market participants constructively to ensure the right outcomes are achieved in a timely and fair manner.”

Accounting and Disclosure Fraud Allegations

The SEC’s complaint charged ADM executives with Accounting and Disclosure Fraud. According to the SEC, the company employed several improper practices to meet operating profit goals or conceal shortfalls, including:

• Retroactive rebates
• Price changes targeted to specific dollar amounts
• Transactions designed to mask operating profit shortfalls
• One-sided transfers of operating profit not available to third parties

These actions allegedly distorted ADM’s reported financial performance and misled investors.

Settlement and Remedial Measures

The litigation did not proceed to judgment because ADM agreed to cooperate fully with the SEC and implement substantial remedial actions, including:

• Instituting an internal investigation
• Voluntarily reporting findings to SEC staff
• Providing additional analyses from an outside accounting expert
• Implementing new internal accounting controls
• Amending accounting policies and procedures
• Testing the effectiveness of new controls
• Creating a Fair Fund to distribute monetary relief to harmed investors

Penalties Imposed

As part of the settlement:

• ADM agreed to pay a $40 million civil penalty
• One officer agreed to disgorgement and prejudgment interest totaling $404,343, a $125,000 civil penalty, and a three-year officer and director bar
• A second officer agreed to disgorgement and prejudgment interest totaling $575,610 and a $75,000 civil penalty

What This Signals for Future SEC Enforcement

The ADM matter provides insight into how enforcement actions may proceed during the second Trump administration:

• Although the company settled, former and current executives may still face liability
• The SEC included accounting fraud charges, which are more serious than mere disclosure failures
• Despite a more business-friendly enforcement climate, the case was viewed as serious across administrations
• Cooperation with the SEC influenced the outcome, and the $40 million penalty is relatively modest compared to prior enforcement actions

Operational Damage Beyond Financial Penalties

SEC enforcement actions often disrupt company operations well beyond the monetary sanctions imposed. Common consequences include:

• Credit rating downgrades
• Reduced access to credit markets
• Significant diversion of senior management time
• Escalating legal and compliance costs
• Additional resources devoted to strengthening accounting and internal controls

How Companies Can Protect Themselves

The federal securities laws impose strict compliance obligations, and negligence is not a defense to SEC enforcement actions. Companies must proactively ensure accurate disclosures, sound accounting practices, and effective internal controls.

The attorneys at Corporate Securities Legal, LLP specialize in advising clients on securities law compliance, enforcement risk, and disclosure obligations. Our goal is to help clients stay out of trouble with the SEC while preserving investor confidence and the integrity of the securities markets.

Capital Formation, Liquidity, and Risk Management

The three basic functions of securities markets are: capital formation, liquidity, and risk management. These markets pair the companies that need capital to function, and the investors with capital that are looking for a return on their investments. It also connects investors together, those that are looking to liquify and sell their securities, and those who want to buy those same securities. The liquidity of securities is crucial to the buyer, and it can be the decision maker on whether or not the buyer will invest. These markets diminish the risk involved with purchasing securities by diversifying and hedging their investments. They can purchase groups of securities to lower the overall risk, despite some of the securities having a higher individual risk.Derivative are further measures to eliminate risks; they create a maximum loss and secure investment gains. Other options like mutual funds, which allow one to be financially involved without having to deal with investment and voting discretion, and put options, which gives the owner the right, but not obligation, to sell a certain amount at a specific price within a certain time frame, are other ways that investors can lower the risks of purchasing securities.

Collateral Benefit

This market, of buying, selling, and trading securities, has beneficial repercussions for the economy. This market helps evaluate the price of certain companies, and even the economy as a whole. Securities prices can help judge management performance, and can act as a valuation for tax or other purposes. The market is not intended to act as an evaluation of companies and their performance or worth, however that is that is a direct result that benefits the economy.

The JOBS (Jumpstart Our Business Startups) Act of 2012, is an amendment to both the Securities Act and the Exchange Act. Its purpose is to encourage economic growth and the increase in jobs, by relaxing the regulatory encumbrances on business start-ups that trying to raise capital in securities markets. There are three major differences in the JOBS Act, along with other smaller revisions of existing rules.

Crowdfunding

This gives small companies the ability to use online markets to sell securities to many small investors. This is the first time that non-public companies can raise capital from public investors without needing to go to register their offerings under state or federal law. This does not mean that there are no restrictions on crowdfunding, however. Among other conditions, the seller has to provide an elaborate offering document, and that the intermediary must be registered by the SEC. One of the biggest crowdfunding platforms today is Kickstarter, which helps smaller companies gain the funding that they need to successfully launch their business, project, etc.

General Solicitations

This act also simplifies the company’s process of marketing private placements. As long as the securities are sold to exclusively “accredited investors,” the company can market their private offerings in far-reaching public markets under Regulation D (which allows smaller companies to raise capital by selling equity or debt securities without having to register their securities with the SEC).

Emerging Growth Companies

The JOBS Act alleviates some of the restrictions and difficulties of “emerging growth companies.” When registering their IPOs they face fewer requirements, like confidential filing and the ability to “test the waters.” In the following five years the companies receive exceptions from some of the disclosure and corporate governance rules that would be enforced for other public companies.

Through the JOBS Act of 2012, “emerging growth companies” will have an easier time gaining capital and marketing their securities. This expedites economic growth stimulation and the creation of more jobs.