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Doug's Note: A Moment of Sanity?

    Client Alerts
  • July 26, 2012

Lost in the crush of this year’s proxy season and the seemingly endless stream of new SEC proposals, guidance and rules (see below) was a moment of bi-partisan sanity that is noteworthy if only to renew our faith in the perseverance of rational ideas.

On April 4th, President Obama signed the Stop Trading on Congressional Knowledge (STOCK) Act, which prohibits members and employees of Congress, as well as employees of the Executive and Judicial branches, from using nonpublic information derived from their duties for personal benefit. The STOCK Act also requires new public disclosures of securities transactions and other financial information by such persons and limits certain other nefarious behavior. This is the culmination of a legislative effort launched, and repeatedly re-launched, beginning in 2006.

You might have thought that the SEC’s insider trading rules already prohibited that type of conduct. However, it was unclear under prior law whether members of Congress, or employees of the Executive and Judicial branches, have the requisite fiduciary duty to the federal government to support a traditional insider trading claim. The STOCK Act removes that uncertainty by amending the Securities Exchange Act to state precisely that.

So, for those of you who are “Form 4 filers” or who have insider trading policy or risk management oversight responsibilities, you may be comforted to know that while you continue to carefully navigate Regulation FD, blackout periods, and the like, members of Congress can no longer (legally) trade a security ahead of the release of, for example, information regarding new legislation or regulations that could reasonably be expected to affect that security’s value.

One Other Thought – New SEC Compensation Committee Rules

On June 20th, the SEC adopted rules (a) requiring all companies subject to the SEC proxy rules to disclose compensation consultant conflicts of interest and (b) directing the national exchanges to propose listing standards relating to compensation committee and adviser independence. The conflict of interest disclosures will be effective for the spring 2013 proxy season. The timing on the stock exchange rules is still uncertain.

We elected not to include an article detailing these new rules in this newsletter since so much remains incomplete at this time. However, we intend to devote a portion of our fall newsletter to proxy season issues, including these new rules, so stay tuned. In the meantime, please feel free to contact us if you have any questions about what you, or your compensation committee, can be doing to get out ahead of this development.