The Kodak Loan: David Oliwenstein Quoted in Forbes on Insider Trading Regulations

“As an overarching matter, U.S. insider trading laws were (and remain, in certain respects) insufficient because insider trading is governed by the general antifraud prohibition of the Exchange Act — there is no specific insider trading statute,” said David Oliwenstein, a Pillsbury Corporate Investigations & White Collar Defense Counsel and former Senior Counsel at the SEC, Division of Enforcement, Market Abuse Unit. “This leads to confusion among market participants regarding the scope of permissible trading as well as gaps in the applicability of insider trading laws to certain conduct.”

“One of those gaps that existed in the 1990s is that issuers would selectively disclose confidential information to certain analysts and institutional investors, who would then profitably trade on that information,” said Oliwenstein. “In response to this gap, the SEC adopted Regulation FD to promote full and fair disclosure. The crux of Regulation FD is that once a public company shares confidential information with certain individuals specified in the rule, that company must immediately disclose that information publicly (the rule also applies to accidental disclosures).”

“There is a question as to whether Regulation FD was satisfied regardless of whether the information was nonpublic for insider trading purposes,” said Oliwenstein. “The ‘reasonably designed to provide broad, non-exclusionary distribution’ standard requires that information be disseminated widely and potentially through various mechanisms designed to reach a broad population. The SEC could credibly take the position that publication by two local news sources is insufficient, even with the discussions in national chatrooms. If that is correct, the SEC would expect Kodak to treat the early dissemination of the news as an accidental disclosure and promptly disclose it in a manner ‘reasonably designed to provide broad, non-exclusionary distribution.’ Instead, the company seems to have done the opposite and asked the reporters to remove the information. The SEC might see this as a Regulation FD violation.”

“One scenario in which the options trading would be unlikely to constitute insider trading is if the transactions were made pursuant to a so-called Rule 10b5-1 plan, which is essentially a trading program that removes all discretion from the officer or director,” said Oliwenstein. “If Kodak or its executives assert Rule 10b5-1 as a defense to the SEC, expect the staff to probe issues designed to get at the legitimacy of the plans including when the plans were created, whether the plans were amended, and, if so, how often and under what circumstances and whether the plans were created when the company was in possession of confidential information.”