NY Times Dealbook: Corporate Liability for Insider Trading Analysis

February 4, 2011

Peter Henning from the NY Times Dealbook “White Collar Watch” with a good analysis about a company’s liability for its employees’ insider trading:

An express corporate policy prohibiting employees and consultants from engaging in illegal conduct does not, however, insulate a company from being charged with a crime based on actions that violate the policy. In United States v. Hilton Hotels Corp., the United States Court of Appeals for the Ninth Circuit held that a company could be held responsible “for the acts of its agents in the scope of their employment, even though contrary to general corporate policy and express instructions to the agent.”

The criminal liability of an organization depends on showing that an employee acted in the course of the person’s employment and there was at least the possibility that the employer would benefit from the illegal conduct. It would be difficult to hold Primary Global responsible for improper disclosures solely by outside consultants because they are not employees and may well have been acting for their own personal interests in leaking confidential information. But the government’s claim that Mr. Nguyen recruited consultants for the purpose of providing inside information to Primary Global’s clients makes it much more likely the firm could be found to be complicit in the acts of the consultants.

It’s a good read.  See the whole article here.


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