Checklist · Corporate

Insider Trading Compliance and Rule 10b5-1 Plans: A Practical Checklist

15 U.S.C. § 78

Type
Checklist
Jurisdiction
National
Date
2024-09-18
Topic
Corporate

Insider trading enforcement is one of the few areas where a single trade by a single executive can produce parallel SEC and criminal exposure, disgorgement, treble civil penalties, and a company-wide compliance failure narrative. This checklist walks a public-company compliance function through the whole discipline in thirteen phases: the classical and misappropriation theories, the tipper/tippee personal-benefit framework after Dirks and Salman, identifying material nonpublic information and the people who hold it, drafting the insider trading policy, running blackout windows and pre-clearance, maintaining restricted and watch lists, and building Rule 10b5-1 plans that actually earn the affirmative defense. It covers the 2022 amendments to Rule 10b5-1 in operational detail — cooling-off periods, director and officer certifications, the overlapping-plan and single-trade limits, and the continuing good-faith condition — along with the Item 408 disclosure regime, Section 16 reporting and short-swing disgorgement, and the Regulation FD overlay. Each phase closes with the traps that catch real companies, illustrated by a running hypothetical about an executive who adopts a plan at exactly the wrong moment. Use it to build a program, to audit one, or to pressure-test a plan before it is signed.

Insider Trading Compliance and Rule 10b5-1 Plans: A Practical Checklist

Corporate > Securities | Published 18 September 2024 - Updated 14 January 2026 | UpLaw - uplaw.us

Insider trading law does not punish trading while informed. It punishes trading in breach of a duty. Everything a compliance program does — windows, pre-clearance, restricted lists, 10b5-1 plans — exists to make that distinction visible in advance, on paper, before anyone hits the sell button.

Keywords: insider trading, Rule 10b5-1, material nonpublic information, MNPI, Rule 10b-5, misappropriation, tipper/tippee liability, personal benefit, cooling-off period, Item 408, Section 16, short-swing profits, Regulation FD, pre-clearance, blackout period

How to use this checklist

Work the phases in order the first time you build a program, then treat Phases 5 through 13 as a recurring operating cycle. Phases 1 through 3 are doctrine — do not skip them, because every operational rule downstream is a proxy for a legal element upstream. Phases 4 through 7 build the policy machinery. Phases 8 through 10 are the Rule 10b5-1 discipline, which is where most modern enforcement risk now concentrates. Phases 11 through 13 close the loop with reporting, Regulation FD, and enforcement.

Running example. Calderwood Diagnostics, Inc. is a NASDAQ-listed clinical-diagnostics company. Its CFO, Marisol Renn, wants to diversify. On 3 March she calls the general counsel and asks to adopt a Rule 10b5-1 plan. Nine days earlier, Calderwood's CEO received an unsolicited indication of interest from a strategic acquirer at a substantial premium; the board has scheduled a special meeting. Renn was on the call. We will follow her through every phase.

Phase 1 — Understand the theories: classical, misappropriation, and Rule 14e-3

  • [ ] Confirm your program is drafted against Section 10(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5 — there is no freestanding federal "insider trading" statute.
  • [ ] Map the classical theory: a corporate insider who trades in her own company's securities on material nonpublic information (MNPI) breaches a duty to the shareholders on the other side of the trade. Chiarella v. United States, 445 U.S. 222 (1980), holds that liability requires a duty — silence is not fraud absent one.
  • [ ] Map the misappropriation theory: a person who trades on MNPI in breach of a duty owed to the source of the information defrauds the source, even if he owes nothing to the issuer or its shareholders. United States v. O'Hagan, 521 U.S. 642 (1997).
  • [ ] Identify who owes a duty of trust or confidence under Rule 10b5-2, 17 C.F.R. § 240.10b5-2 — an express agreement of confidence, a history or pattern of sharing confidences, or a spousal/parent/child/sibling relationship (with a narrow affirmative defense).
  • [ ] Note that temporary insiders — outside counsel, auditors, bankers, consultants — assume insider duties when the issuer entrusts them with information for a corporate purpose, per Dirks v. SEC, 463 U.S. 646 (1983), n.14.
  • [ ] Add Rule 14e-3, 17 C.F.R. § 240.14e-3, to your tender-offer protocol: once a substantial step toward a tender offer has been taken, trading on MNPI about it is unlawful without any breach-of-duty element.
  • [ ] Confirm your policy captures scienter as the mental state: Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).

Why it matters, and the traps. The single most common drafting error is a policy that says "do not trade while you know material nonpublic information." That is a good behavioral rule and a bad statement of law — and the mismatch bites when a company must explain to the SEC why its policy did or did not reach a given fact pattern. Two traps recur. First, Rule 14e-3 has no duty element, so an employee who learns of a tender offer from a stranger at a bar is exposed in a way the classical theory would not reach; a policy keyed only to "your duty to Calderwood" misses it. Second, the misappropriation theory reaches information about other companies. The SEC's "shadow trading" theory — that an employee who misappropriates his employer's confidential deal information and trades in an economically linked third party's stock violates Rule 10b-5 — was accepted by a federal jury in SEC v. Panuwat in 2024. Your policy must therefore restrict trading in peers, customers, suppliers, and counterparties about whom employees learn MNPI, not merely in your own ticker. For the criminal overlay and the DOJ's parallel interest in these cases, see White-Collar Crime and Corporate Criminal Liability: A Comprehensive Guide.

Phase 2 — Tipper/tippee liability: personal benefit after Dirks and Salman

  • [ ] Train supervisors on the tipper's element: a tipper is liable only if he disclosed MNPI in breach of a duty for a personal benefit. Dirks v. SEC, 463 U.S. 646 (1983).
  • [ ] Train on the tippee's derivative element: the tippee is liable only if he knew or should have known the tip was a breach.
  • [ ] Confirm the personal-benefit test is not limited to cash: a gift of confidential information to a trading relative or friend supplies the benefit. Salman v. United States, 580 U.S. 39 (2016).
  • [ ] Note the doctrinal history: the Second Circuit's decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), had suggested the benefit must be "of a pecuniary or similarly valuable nature"; Salman rejected that limitation for gift cases. Do not train to Newman's narrower rule.
  • [ ] Cover remote tippees and chains: liability follows the information down the chain so long as the knowledge element is met at each link.
  • [ ] Warn expressly against "friends-and-family" leakage, casual disclosure at conferences, and disclosure in personal-relationship contexts — the exact facts of Salman.

Why it matters, and the traps. Employees systematically underestimate tipping. They understand "don't trade"; they do not understand that telling a brother-in-law "you should really look at Calderwood this month" is the same offense with the same penalties. The traps: (1) no trade of your own is required — a tipper who never trades a share can face disgorgement of the tippee's profits and civil penalties, and can be prosecuted; (2) "I didn't tell them to trade" is not a defense where the tip was made knowing trading was likely; and (3) the personal benefit can be reputational — the "quid pro quo of a market-analyst relationship" in Dirks — so an executive who leaks to curry favor with a sell-side analyst is squarely exposed. Build the tipping module into your standard compliance training and document attendance; see Conducting a Workplace Investigation: A Practical Checklist for how a leak allegation should be run once it surfaces.

Phase 3 — Identify material nonpublic information (MNPI) and who holds it

  • [ ] Adopt the materiality standard: information is material if there is a substantial likelihood a reasonable investor would consider it important in making an investment decision, and disclosure would significantly alter the total mix of available information. TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976).
  • [ ] Apply the probability/magnitude balancing for contingent or speculative events — merger negotiations, in particular. Basic Inc. v. Levinson, 485 U.S. 224 (1988).
  • [ ] Reject bright-line quantitative filters: Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), holds that statistical significance is not a prerequisite to materiality.
  • [ ] Publish a non-exhaustive MNPI catalogue in the policy: earnings and guidance, pending M&A, major litigation developments, regulatory approvals or rejections, cybersecurity incidents, executive changes, significant customer wins or losses, restatements, financings, and dividend or buyback decisions.
  • [ ] Define "nonpublic" operationally: information remains nonpublic until broadly disseminated and the market has had time to absorb it — a working convention of one full trading day after a Form 8-K or press release, stated in the policy.
  • [ ] Maintain an MNPI custody map: which functions routinely generate MNPI (finance close, corporate development, clinical/regulatory, legal, IR) and which individuals sit inside each.
  • [ ] Confirm the policy applies to all covered persons regardless of subjective belief — Rule 10b5-1(b) makes trading "on the basis of" MNPI a matter of awareness, not use.

Why it matters, and the traps. Rule 10b5-1(b) is the quiet workhorse. It provides that a purchase or sale is "on the basis of" MNPI if the trader was aware of the information when trading. That forecloses the old "I would have sold anyway" defense — which is precisely why the affirmative defense in Rule 10b5-1(c) exists at all. The traps: (1) treating materiality as a percentage threshold ("it's only 3% of revenue"), which Matrixx forecloses; (2) treating early-stage merger talks as immaterial because they are uncertain, which Basic forecloses; and (3) forgetting that negative information is material — an executive who avoids a loss by selling ahead of a bad readout is liable exactly as one who captures a gain.

Calderwood, applied. An unsolicited premium indication of interest with a scheduled board meeting is not a done deal — but under Basic's probability/magnitude framework, the magnitude of a control premium is enormous and the probability is no longer trivial. Renn, who was on the call, is aware of MNPI. She is not eligible to trade, and — as Phase 8 will show — she is not eligible to adopt a plan either.

Phase 4 — Build the insider trading policy and define covered persons

  • [ ] Draft or refresh a written Insider Trading Policy with: scope, definitions, the trading prohibition, the tipping prohibition, blackout periods, pre-clearance, the 10b5-1 protocol, post-employment coverage, and sanctions.
  • [ ] Define covered persons in tiers: (a) directors and Section 16 officers; (b) designated "Window Group" employees with routine MNPI access; (c) all employees, contractors, and consultants for the baseline prohibition.
  • [ ] Extend coverage to family members sharing a household, entities controlled by covered persons, trusts, family partnerships, and — critically — accounts the covered person can influence.
  • [ ] Prohibit or restrict hedging, pledging, margin accounts, short sales, and puts/calls in company stock for directors and officers. Section 16(c), 15 U.S.C. § 78p(c), already bans short sales by Section 16 insiders; hedging disclosure is separately required of issuers.
  • [ ] Add the other-company prohibition (customers, suppliers, counterparties, peers) to address misappropriation and shadow-trading exposure.
  • [ ] Address Regulation BTR (17 C.F.R. Part 245) pension-plan blackouts under Section 306(a) of Sarbanes-Oxley.
  • [ ] Have the board or audit committee formally adopt the policy and record the adoption in the minutes; see Board Governance, Minutes, and Corporate Formalities: A Practical Checklist.
  • [ ] Prepare the policy to be filed as an exhibit (Item 601(b)(19) of Regulation S-K) — it is now a public document; write it accordingly.

Why it matters, and the traps. Since the 2022 rulemaking, your insider trading policy is no longer an internal artifact. Issuers must disclose annually whether they have adopted insider trading policies and procedures, and must file the policy itself as an exhibit. That changes the drafting calculus: aspirational language you cannot operationalize becomes a roadmap for an enforcement staff or a plaintiffs' firm. The classic traps are (1) a policy that covers "employees" but not the consultants and contractors who sit in the data room; (2) no post-termination tail, leaving a departing controller free to trade on the quarter he just closed; and (3) failing to police household family members, whose trades the SEC routinely attributes to the insider. Directors owe fiduciary oversight duties over this system — see Corporate Governance and Fiduciary Duties: A Comprehensive Guide for Directors and Officers — and the broader program architecture is mapped in The Corporate Compliance Toolkit.

Phase 5 — Blackout periods and the quarterly trading windows

  • [ ] Define the regular quarterly blackout: typically opening at a fixed point before quarter-end (commonly two to four weeks) and closing after the market has absorbed the earnings release (commonly one to two full trading days after).
  • [ ] Publish the open-window calendar to the Window Group at the start of each fiscal year and re-confirm it each quarter.
  • [ ] Build an event-specific (special) blackout mechanism the GC can impose without explanation — the announcement of a blackout is itself a signal, so the trigger must never be disclosed to the affected person.
  • [ ] Confirm that an open window is a necessary but not sufficient condition: a person aware of MNPI may not trade even during an open window. Say this in bold in the policy.
  • [ ] Coordinate blackouts with 401(k) and ESPP elections, option exercises, and RSU settlement mechanics.
  • [ ] Log every blackout — start, end, scope, and who imposed it — as part of the compliance record.

Why it matters, and the traps. The window is a risk-management device, not a legal safe harbor. Nothing in Rule 10b-5 makes a trade lawful because it happened in an open window, and nothing makes it unlawful because it happened in a closed one. The traps: (1) employees who read "the window is open" as permission, which is why the "necessary but not sufficient" sentence must be conspicuous; (2) special blackouts that leak, telling twelve people that something big is happening — impose them tersely, without rationale, and to a defined list; and (3) forgetting that a special blackout does not stop a validly adopted 10b5-1 plan from executing, which is a feature, not a bug, but it must be understood in advance.

Phase 6 — Pre-clearance procedures and the compliance gatekeeper

  • [ ] Require written pre-clearance for every transaction in company securities by directors, Section 16 officers, and the Window Group — including gifts, charitable transfers, and 401(k) fund switches into or out of company stock.
  • [ ] Route requests to a designated compliance officer with a named backup, and never allow a person to clear his own trade.
  • [ ] Give clearances a short shelf life — 48 to 72 hours is typical — after which the request lapses and must be resubmitted.
  • [ ] Require the requester to affirm in writing that he is not aware of MNPI.
  • [ ] Have the clearer check, before approving: the window status; the restricted list; pending 8-K events; any Section 16(b) matchable transaction within the preceding six months; Rule 144 volume and Form 144 requirements for affiliates; and any existing 10b5-1 plan.
  • [ ] Document the denial as carefully as the approval — denials are the evidence that the gate works.
  • [ ] Reserve the right to revoke a clearance before execution.

Why it matters, and the traps. Pre-clearance is where compliance converts doctrine into an audit trail. When the SEC's Analysis and Detection Center flags a well-timed trade — and it does, systematically, by screening trading data against announcement dates — the company's first and best answer is a contemporaneous record showing what was known, by whom, on the day of clearance. The traps: (1) gifts, which employees do not think of as transactions but which the SEC has charged where the donor knew of impending bad news; (2) stale clearances, where a five-day-old approval is executed after the world has changed; and (3) the Section 16(b) match, which is strict liability and which a distracted clearer will miss. The gatekeeper must have an unambiguous mandate and a direct line to the GC. Where the clearer's answer is "no," it must stick — regardless of who is asking.

Calderwood, applied. Renn's 3 March request lands on the GC's desk. The GC is inside the deal. Even if the window is technically open, the GC must deny — and must do so without explaining why, because the explanation is itself MNPI.

Phase 7 — Restricted lists, watch lists, and information barriers

  • [ ] Maintain a watch list (highly confidential, known only to compliance) of pending matters generating MNPI — deals, investigations, restatements, major regulatory events.
  • [ ] Maintain a restricted list of securities in which covered persons may not trade, derived from the watch list and from third-party MNPI.
  • [ ] Keep a deal-team log: every person brought over the wall, the date, and the confidentiality acknowledgment they signed.
  • [ ] Implement information barriers — physical, technical, and procedural — around deal teams, with need-to-know access controls on the data room.
  • [ ] Use code names for material transactions and enforce them.
  • [ ] Reconcile the restricted list against pre-clearance requests automatically, not by memory.
  • [ ] Add third-party issuers to the restricted list when your employees hold MNPI about them (customers, targets, licensors).

Why it matters, and the traps. The restricted list and the watch list are two different documents with two different audiences, and merging them is a classic failure: the restricted list circulates to the people who need to know what not to trade, and if it names a target, you have just tipped the entire Window Group. Keep the watch list to compliance. The other traps: (1) a deal-team log that is not maintained contemporaneously, which is worthless when the SEC asks who knew what on 22 February; and (2) stale restricted lists that never get cleaned, which train people to ignore them. The wall-crossing discipline here is the same one you run in diligence — see Conducting Merger and Acquisition Due Diligence: A Practical Checklist and, for the transactional arc that generates the MNPI in the first place, Mergers and Acquisitions: A Comprehensive Guide from Letter of Intent to Closing.

Phase 8 — Rule 10b5-1 plans: the affirmative defense and its strict conditions

  • [ ] Understand what Rule 10b5-1(c) is: an affirmative defense, not a safe harbor. The burden is on the trader to establish every element, and losing one element loses the whole defense.
  • [ ] Confirm the plan was adopted at a time when the person was not aware of MNPI. This is the threshold condition and the one most often fatal.
  • [ ] Confirm the plan specifies the amount, price, and date of trades; or provides a written formula/algorithm; or delegates all discretion to a broker who is not aware of MNPI.
  • [ ] Confirm the trader does not exercise subsequent influence over how, when, or whether trades occur.
  • [ ] Confirm the plan was entered into in good faith and not as part of a plan or scheme to evade Rule 10b-5.
  • [ ] Treat any modification of amount, price, or timing as a termination and new adoption — restarting every condition, including the cooling-off period.
  • [ ] Require plans to be in writing, signed, dated, and retained by compliance.
  • [ ] Verify the broker's instructions match the plan document exactly.

Why it matters, and the traps. Rule 10b5-1(c) exists because Rule 10b5-1(b)'s awareness standard would otherwise make it nearly impossible for a chronically informed executive to ever sell stock. The rule buys that executive a defense in exchange for irrevocably committing to a trading schedule while clean. The traps are severe. (1) Adoption while aware. The defense fails at inception; nothing downstream cures it. (2) Modification. Executives think of a plan as a living instrument. It is not. Changing the price or amount is a fresh adoption requiring a fresh cooling-off period and, for directors and officers, a fresh certification. (3) Influence. Calling the broker to "check in" on execution risks the element. (4) Cancellation. Terminating a plan is not itself a trade and does not, standing alone, forfeit the defense for completed trades — but a pattern of adopting and cancelling plans is powerful evidence of bad faith and will be read as an attempted option on hindsight. The related private-litigation exposure — including how plaintiffs plead scienter from suspicious plan trading — is developed in Securities Fraud Litigation: A Comprehensive Guide to Rule 10b-5 Private Actions.

Phase 9 — The 2022 amendments: cooling-off periods, certifications, overlapping-plan and single-trade limits, good faith

  • [ ] Apply the director/Section 16 officer cooling-off period: no trading until the later of (a) 90 days after adoption or modification, or (b) two business days after the issuer discloses financial results for the fiscal quarter in which the plan was adopted — subject to a maximum of 120 days after adoption.
  • [ ] Apply the 30-day cooling-off period for other persons (issuers themselves are not subject to a mandated cooling-off period under the rule, though best practice imposes one).
  • [ ] Obtain the director/officer certification at adoption or modification: that the person is not aware of MNPI and is adopting the plan in good faith and not as part of a plan or scheme to evade Rule 10b-5. Retain it; the rule does not require filing it, but you will want it.
  • [ ] Enforce the no-overlapping-plans condition for open-market trades by persons other than the issuer, and apply the exceptions carefully (a later-commencing plan that does not begin trading until the earlier plan concludes; and eligible sell-to-cover arrangements).
  • [ ] Enforce the single-trade plan limit: no more than one single-trade plan in any 12-month period (with the sell-to-cover exception).
  • [ ] Apply the sell-to-cover exception only to plans authorizing sales solely to satisfy tax withholding obligations on the vesting of compensatory equity awards — it does not cover option exercises.
  • [ ] Satisfy the continuing good faith requirement: the trader must have acted in good faith with respect to the plan, not merely entered it in good faith.
  • [ ] Check the Form 4/Form 5 box identifying a transaction as made pursuant to a 10b5-1 plan and report the plan adoption date.

Why it matters, and the traps. The 2022 amendments (adopted December 2022, generally effective February 2023) converted 10b5-1 from a lightly policed convenience into a rule with teeth, precisely because academic work and enforcement experience showed insiders systematically outperforming through same-day and short-fuse plans. Traps: (1) the 90/120-day formula is not "90 days" — for a plan adopted mid-quarter, the earnings-release prong usually controls, and compliance calendars that hard-code 90 days will authorize a premature trade; (2) modification silently restarts the clock, and a broker-initiated "adjustment" can qualify; (3) the sell-to-cover exception is narrower than everyone assumes — an executive who thinks it covers option exercises has just created an unpermitted overlapping plan; and (4) the continuing good-faith condition is the SEC's catch-all — it is how the staff reaches an executive who does not literally influence trades but manipulates the disclosure environment around them, for example by delaying an 8-K until a plan sale clears.

Calderwood, applied. Suppose the GC misses the conflict and Renn's plan is signed on 3 March, with sales scheduled to begin on 2 June — a full 90 days later, and comfortably after the Q1 earnings release. The merger is announced on 20 April; the stock jumps 40%. Renn never touches the plan and never sells. She is still exposed: she was aware of MNPI at adoption, so the Rule 10b5-1(c) defense never attached, and her certification — that she was unaware of MNPI and acting in good faith — is a written false statement handed to the enforcement staff. The cooling-off period is not a laundering mechanism. It buys nothing if the plan was dirty at inception.

Phase 10 — Item 408 disclosure of plan adoption/termination and the policy itself

  • [ ] Implement Item 408(a) of Regulation S-K: quarterly disclosure (Form 10-Q/10-K) of the adoption or termination, by any director or officer, of a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, including the person's name and title, the date, the duration, and the aggregate number of securities — but not the pricing terms.
  • [ ] Implement Item 408(b): annual disclosure of whether the issuer has adopted insider trading policies and procedures reasonably designed to promote compliance, and if not, why not.
  • [ ] File the insider trading policy as an exhibit under Item 601(b)(19) of Regulation S-K.
  • [ ] Implement Item 402(x): disclosure of policies and practices on the timing of option grants relative to the release of MNPI — the "spring-loading" disclosure.
  • [ ] Build a quarterly data feed from the pre-clearance/plan register into the disclosure-controls process so nothing is missed at the 10-Q.
  • [ ] Confirm the plan register captures everything Item 408(a) requires at adoption, not at quarter-end.
  • [ ] Tie the whole flow into disclosure controls and procedures under Rule 13a-15 — see Public Company Disclosure and Reporting: A Practical Checklist.

Why it matters, and the traps. Item 408 made 10b5-1 activity public and periodic. Plaintiffs' firms and short sellers read these tables; so does the enforcement staff. The traps: (1) treating Item 408(a) as a Section 16 problem rather than a disclosure-controls problem — it is the latter, and it belongs in the 10-Q process with a named owner; (2) missing "non-Rule 10b5-1 trading arrangements," which are also disclosable — a written arrangement that fails the rule's conditions still gets reported; and (3) filing an exhibit policy that describes controls the company does not actually run, which is a disclosure violation layered on top of a compliance failure.

Phase 11 — Section 16 reporting and short-swing profit disgorgement

  • [ ] Identify Section 16 insiders: directors, officers (as defined in Rule 16a-1(f)), and beneficial owners of more than 10% of a registered class.
  • [ ] File Form 3 on becoming an insider, Form 4 within two business days of a reportable transaction, and Form 5 within 45 days after fiscal year end for deferred items.
  • [ ] Screen every insider transaction for Section 16(b) short-swing liability, 15 U.S.C. § 78p(b): any purchase and sale (or sale and purchase) of equity securities within any six-month period by a Section 16 insider yields profit recoverable by the issuer.
  • [ ] Understand that Section 16(b) is strict liability — no MNPI, no scienter, and no benign motive is a defense; profits are computed to maximize recovery by matching lowest purchase against highest sale.
  • [ ] Use Rule 16b-3 exemptions properly for issuer grants and dispositions to the issuer approved in advance by the board or a committee of two or more non-employee directors — and document the approval in the minutes.
  • [ ] Remember that 10b5-1 plan trades are not exempt from Section 16(b); a plan sale can be matched against an open-market purchase.
  • [ ] Run a rolling six-month matching report as part of pre-clearance.

Why it matters, and the traps. Section 16(b) is the trap that catches innocent people, because it does not care whether anyone was informed. A director who buys on the open market in March to signal confidence, then has a 10b5-1 plan sale execute in July, has created matchable profit — recoverable by the issuer, typically demanded by a plaintiff's firm that monitors Forms 4 and collects a fee. The related traps: (1) Rule 16b-3 exemptions that were never properly approved — the exemption depends on the manner of approval, which is why compensation committee resolutions must be precise; (2) late Forms 4, which are separately disclosable delinquencies and a governance embarrassment; and (3) forgetting the insider's household holdings, which are beneficially owned. Equity mechanics and vesting interactions are covered in Founder Equity, Vesting, and the 83(b) Election: A Practical Checklist.

Phase 12 — Regulation FD and the selective-disclosure overlay

  • [ ] Identify the persons covered by Regulation FD, 17 C.F.R. §§ 243.100–243.103: the issuer and its senior officials and personnel who regularly communicate with securities market professionals or with holders who may trade on the information.
  • [ ] For intentional selective disclosure of material nonpublic information to a covered recipient, make simultaneous public disclosure.
  • [ ] For non-intentional selective disclosure, make prompt public disclosure — no later than 24 hours or the commencement of the next day's trading on the NYSE, whichever is later.
  • [ ] Rely on the exclusions carefully: persons who owe the issuer a duty of trust or confidence (attorneys, investment bankers, accountants) and persons who expressly agree to keep the information confidential.
  • [ ] Use a confidentiality agreement before any wall-crossing of an investor or analyst, and log it.
  • [ ] Maintain an authorized-spokesperson list and route all IR contacts, earnings calls, conference appearances, and one-on-one investor meetings through it.
  • [ ] Note that Rule 102 of Regulation FD provides that a failure to comply with Regulation FD is not itself a Rule 10b-5 violation — but the underlying conduct may independently be one.

Why it matters, and the traps. Regulation FD and insider trading law are different offenses that share a fact pattern: someone said something material to someone who could trade on it. A quiet-period one-on-one where the CFO "just clarifies" a guidance range is the paradigm. The traps: (1) the "no new information" self-assessment, made in real time by the person who just spoke, which is exactly the wrong decision-maker; (2) non-intentional disclosures that are never escalated, because the speaker does not realize what he said; and (3) social media and analyst-day disclosures made without simultaneous public dissemination. Build a same-day escalation path — an IR contact who thinks he may have slipped calls the GC before the market opens.

Phase 13 — Training, certification, monitoring, and enforcement

  • [ ] Deliver annual training to all employees and enhanced training to the Window Group, deal teams, and new hires within 30 days of start.
  • [ ] Collect an annual written certification of policy compliance from directors, officers, and the Window Group.
  • [ ] Run surveillance: reconcile broker duplicate confirmations against pre-clearance approvals; consider a designated-broker program for Section 16 insiders.
  • [ ] Run a post-announcement look-back after every material 8-K: who traded in the preceding 30 days, and was each trade cleared?
  • [ ] Establish an anonymous reporting channel and a documented escalation path.
  • [ ] Define and apply graduated sanctions up to termination, and apply them to senior people — inconsistent enforcement is worse than no policy.
  • [ ] Know the exposure you are managing: SEC civil penalties under Section 21A, 15 U.S.C. § 78u-1, of up to three times the profit gained or loss avoided, plus disgorgement, prejudgment interest, and officer-and-director bars; criminal exposure under Section 32(a), 15 U.S.C. § 78ff, with substantial statutory maximum fines and imprisonment; controlling-person penalties against the company under Section 21A(b) for knowing or reckless failure to maintain and enforce policies; and a private right of action for contemporaneous traders under Section 20A, 15 U.S.C. § 78t-1. Statutory penalty dollar figures are periodically adjusted for inflation by SEC rule — confirm the current amounts before advising.
  • [ ] Understand where the case will be heard: after SEC v. Jarkesy, 603 U.S. 109 (2024), the SEC may not impose civil penalties for securities fraud through its own in-house administrative proceedings when the claim is legal in nature — the Seventh Amendment entitles the respondent to a jury in an Article III court. Contested insider trading penalty cases therefore belong in federal district court. Note also that, after Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which overruled Chevron, a reviewing court interprets the Exchange Act de novo; the SEC's reading of its own insider trading rules is entitled only to Skidmore-style respect for its persuasive power, not binding deference. Do not assume an SEC interpretive position will be rubber-stamped.
  • [ ] Rehearse the investigation response in advance: Responding to an SEC Investigation and Wells Notice: A Practical Checklist and Responding to a Government Subpoena or Investigation: A Practical Checklist; the full enforcement arc is in SEC Enforcement: A Comprehensive Guide to Investigations, Wells Notices, and Remedies.

Why it matters, and the traps. Section 21A(b) is the provision that turns an employee's misconduct into the company's problem: a controlling person who knew or recklessly disregarded the likelihood of insider trading by a controlled person and failed to take appropriate steps to prevent it faces a penalty. The defense to that charge is a real program — trained, certified, monitored, and enforced — with a paper trail. The traps: (1) training decks nobody attended, because attendance was never tracked; (2) surveillance that exists on paper but has no owner; and (3) the fatal one — selective enforcement, where a junior analyst is terminated for a window violation and an executive vice president is given a warning for the same conduct. When the SEC asks whether the company took appropriate steps, that comparison is the first thing it will find.

Common Mistakes to Avoid

  1. Treating the open window as permission to trade. It is a scheduling convenience layered on top of an absolute prohibition. Awareness of MNPI overrides the calendar, always.
  2. Restricting only your own ticker. Misappropriation and shadow-trading exposure runs to customers, suppliers, targets, and economically linked peers. The Panuwat jury verdict made this concrete.
  3. Adopting a 10b5-1 plan while aware of MNPI and relying on the cooling-off period to cure it. It does not cure it. The defense fails at inception, and the certification becomes an exhibit against you.
  4. Hard-coding "90 days" as the cooling-off period for directors and officers. The period is the later of 90 days or two business days after the quarterly financial results disclosure, capped at 120 days. Mid-quarter adoptions almost always run past 90.
  5. Treating a plan modification as a minor administrative change. Any change to amount, price, or timing is a termination and a new adoption — new cooling-off, new certification, new Item 408 disclosure.
  6. Serial adopt-and-cancel behavior. Cancellation is not a trade, but a pattern of cancelling plans that would have traded badly is the best circumstantial evidence of bad faith the SEC could ask for.
  7. Assuming the sell-to-cover exception covers option exercises. It covers sales solely to satisfy tax withholding on the vesting of compensatory awards. Nothing else.
  8. Missing Item 408(a) at the 10-Q. Plan adoptions and terminations by directors and officers, and non-Rule 10b5-1 trading arrangements, are quarterly disclosure items with a named owner in disclosure controls — not a Section 16 afterthought.
  9. Ignoring Section 16(b) because "nobody had inside information." Short-swing liability is strict. Motive, knowledge, and good faith are all irrelevant.
  10. Forgetting gifts, 401(k) fund switches, and household family accounts. All are transactions. All get pre-cleared.
  11. Explaining a special blackout. The reason is itself MNPI. Impose it tersely, to a defined list, and say nothing.
  12. Letting the person inside the deal clear his own trade — or clear anyone's. Segregate the gatekeeper function and name a conflict-free backup.

The Consolidated Insider Trading Compliance Checklist

Doctrine and scope

  • [ ] Policy drafted against Section 10(b)/Rule 10b-5, Rule 10b5-1, Rule 10b5-2, and Rule 14e-3
  • [ ] Classical, misappropriation, and tipper/tippee theories all addressed
  • [ ] MNPI catalogue published; "nonpublic" defined operationally
  • [ ] Third-party issuers (customers, suppliers, targets, peers) covered

Policy machinery

  • [ ] Covered persons tiered; household family, controlled entities, contractors, and post-employment tail included
  • [ ] Hedging, pledging, margin, and short sales restricted for D&Os
  • [ ] Policy adopted by the board and minuted; filed as an Item 601(b)(19) exhibit
  • [ ] Quarterly window calendar published; special-blackout mechanism in place
  • [ ] Written pre-clearance with a short shelf life, an MNPI affirmation, and documented denials
  • [ ] Watch list (compliance-only) and restricted list (circulated) maintained separately
  • [ ] Deal-team log and wall-crossing acknowledgments kept contemporaneously

Rule 10b5-1 discipline

  • [ ] No plan adopted while aware of MNPI — verified independently of the requester's say-so
  • [ ] Plan in writing: amount, price, and date specified, or a written formula, or full broker discretion
  • [ ] No subsequent influence; broker instructions match the plan document
  • [ ] Cooling-off applied: D&Os — later of 90 days or two business days after the quarter's results disclosure, max 120 days; others — 30 days
  • [ ] D&O certification of no-MNPI and good faith obtained and retained
  • [ ] No overlapping plans; no more than one single-trade plan per 12 months; sell-to-cover exception applied narrowly
  • [ ] Continuing good faith monitored; modifications treated as new adoptions
  • [ ] Form 4/5 10b5-1 checkbox and plan adoption date reported

Disclosure and reporting

  • [ ] Item 408(a) quarterly plan adoption/termination disclosure wired into disclosure controls
  • [ ] Item 408(b) annual policy disclosure; Item 402(x) option-timing disclosure
  • [ ] Forms 3/4/5 filed on time; rolling six-month Section 16(b) match run at pre-clearance
  • [ ] Rule 16b-3 approvals properly documented in committee minutes

Regulation FD and program operation

  • [ ] Authorized-spokesperson list; same-day escalation path for suspected slips
  • [ ] Confidentiality agreements before any wall-crossing of investors or analysts
  • [ ] Annual training with tracked attendance; annual certifications collected
  • [ ] Broker duplicate confirmations reconciled; post-8-K look-back run
  • [ ] Graduated sanctions defined and applied consistently at every level of seniority

Primary Authority

Statutes

Rules and regulations

Cases

Accuracy note — verify before relying. Three cautions. First, statutory and regulatory penalty dollar amounts are periodically adjusted for inflation by SEC rule; the multiples (up to three times profit gained or loss avoided) are statutory, but the fixed-dollar caps are not — confirm the current figures. Second, the SEC's insider trading, Rule 10b5-1, and disclosure rules continue to evolve, and rule text, cooling-off mechanics, and Item 408 line items should be checked against the current C.F.R. and the latest SEC releases before you build a control around them; the same is true of any exchange listing-standard overlay. Third, the shadow-trading theory rests on a single district-court jury verdict and remains contested; treat it as an enforcement risk to be managed, not as settled law. Finally, note that this checklist addresses federal securities law. State "blue sky" antifraud provisions and state common-law fiduciary claims can run in parallel, they vary by state, and nothing here states a uniform nationwide rule on those subjects — confirm your state's law separately.

Secondary sources

  • Louis Loss, Joel Seligman & Troy Paredes, Securities Regulation (treatise)
  • Thomas Lee Hazen, The Law of Securities Regulation
  • Alan R. Bromberg & Lewis D. Lowenfels, Bromberg and Lowenfels on Securities Fraud
  • SEC adopting release for the 2022 amendments to Rule 10b5-1 and related disclosures (Release Nos. 33-11138; 34-96492)

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This checklist is general legal information from UpLaw (uplaw.us), not legal advice, and does not create an attorney-client relationship. Laws vary by state and change over time; verify current requirements and consult qualified counsel before acting.