Husband and Wives Insider Trading

We've covered the range of insider trading cases in past editions of the NASPP Blog - ranging from employees gone rogue with inside information, to the accidental tipping off of friends during a Sunday brunch, to the SEC's recent vigor in pursuing these cases. Just when I thought there were no more angles to cover with the SEC's recent and ongoing crackdown on insider trading, I find myself surprised. It turns out the latest pair to settle SEC charges of insider trading are two husbands, both who gleaned inside information from their wives about their employers and used that knowledge to trade profitably.

Are Spouses Precluded from Trading?

I've read many an insider trading policy, and they often attempt to extend the boundary of insider trading parameters to spouses and other family members living in the same home. Even if a policy doesn't address it, it pretty much goes without saying that a spouse shouldn't be trading on any information received from their partner about the partner's employer.

Sneaky Husbands

This week the SEC reiterated their no-nonsense approach to pursuing insider trading charges when they settled charges against two husbands. What strikes me is that, based on the facts available, the "tipping" in this case was so benign - virtually through the normal co-existence that occurs in a same-household relationship. In one case, a husband put two and two together as his wife talked about an upcoming acquisition. In the other case, a wife talked on the phone to her employer about the fact that the company would be missing their earnings target for the first time in 31 quarters, all while on a leisurely vacation drive to Reno with her husband. When they returned from vacation, the husband structured a series of trades to profit off the earnings miss. In both cases, the wives reportedly instructed their husbands to never, ever trade on any information shared or overheard.

Neither of the wives were charged in the SEC's investigation. However, the penalties to their spouses weren't cheap - both husbands settled with the SEC for double the amount of their profits in the case (a $300,000 settlement for one husband based on $150,000 in profits, and a $280,000 settlement in the other case, based on $140,000 in profits).

Tipping from Merely Existing?

Many of us in stock compensation can probably relate to the manner in which the inside information in these cases were obtained. How many times are we on a conference call at home, or explain to a spouse that we have to work late because of the "deal" that's in the works? It probably is somewhat routine for our issuers, and not a far fetch for our service providers and consultants either. While both wives in these two cases seemed to do everything right by instructing their spouses not to trade, insider trading still happened. I'm not suggesting that all of our co-habitants out there are likely to trade on overheard information, but I'm guessing these wives didn't think their husbands would do it either. Perhaps this is the right time to clip the articles on the matter and remind our spouses, significant others, roommates, and anyone else who is in a position to overhear or learn from our work habits, that the SEC is on a roll and the penalties can be significant. Not to mention the public embarrassment that occurs from having your name liked to insider trading in the public eye. Yes, it can happen to you. Just ask two wives in Silicon Valley.

-Jennifer