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SEC urges companies applying for filing extensions to guard against increased insider-trading risks under U.S. Federal Securities Laws

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Ingoglia Eugene
Eugene Ingoglia

Partner

New York

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Julian Moore

Partner

New York

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Daniels Mark L
Mark L. Daniels

Associate

New York

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30 March 2020

Federal regulators in the United States are moving quickly to respond to the Covid-19 coronavirus. As part of its Covid-19 coronavirus relief measures, the SEC now permits companies to apply for 45-day filing extensions.

In recent weeks, the U.S. Securities and Exchange Commission has implemented new relief measures for companies experiencing difficulties meeting their obligations under federal securities laws due to the Covid-19 coronavirus.

On March 4, 2020, the Commission issued an order permitting publicly traded companies to apply for a 45-day extension to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020. Companies applying for this extension must show the Commission why the specific circumstances of the applicant warrant the relief.

The SEC Enforcement Unit cautions companies applying for Covid-19 coronavirus filing extensions of attendant insider trading risks.

As this order takes effect, the SEC’s Division of Enforcement is urging companies to guard against heightened insider-trading risks that may accompany the filing. On March 23, 2020, Stephanie Avakian and Steven Peikin, co-directors of the Commission’s enforcement unit, issued a statement outlining these potential risks.

The SEC emphasizes in the statement that qualifying companies may face increased insider-trading risks because more employees may have access to material non-public information for a longer period as compared to the normal course. In order to deal with this heightened risk, the SEC urges companies to make sure that its internal controls are adjusted to account for this expanded group of corporate insiders with access to sensitive information.

“Those with such access- including, for example, directors, officers, employees, and consultants and other outside professionals- should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading,” Avakian and Peikin said in the statement.

The SEC’s statement is an important reminder that as the Commission issues new Covid-19 coronavirus relief measures, companies must contemporaneously ensure that their internal controls and policies address attendant insider trading risks. This is especially critical given that, as here, the Commission may not alert companies to collateral risks until weeks after the relief measures take effect.

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