JONES DAY TALKS®: The Changing Contours of Insider Trading Enforcement
Recent high-profile insider trading cases leave little doubt that these matters remain an enforcement priority for Washington agencies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Department of Justice (DOJ). Jones Day partners Joan McKown, Josh Sterling, and Brian Rabbitt talk about enforcement trends, proposed rule changes, and the increased cooperation between federal authorities.
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A full transcript of the podcast follows.
Dave Dalton:
Recent actions taken by federal agencies show that insider trading remains a high level enforcement priority. The SEC has launched one of the first cases to target so-called shadow trading by a corporate executive. We'll tell you where that stands.
Meanwhile, the SEC lost a case that may illustrate the limitation of using data analytics in proving cases to judges and juries. We'll also talk about how Dodd-Frank expanded the Commodity Futures Trading Commission's, or CFTCs authority in insider trading matters. And we'll wrap up the discussion with a look at how the justice department continues to collaborate with the SEC and now with the CFTC on these cases. That's a lot to cover. So stay with us. I'm Dave Dalton, you're listening to JONES DAY TALKS®.
Joan McKown is a partner in Jones Day's securities litigation and SEC enforcement practice. She has more than 30 years of experience in Securities and Exchange Commission enforcement and financial regulatory matters, including investigations, exams, internal investigations and disputes throughout the United States. Prior to joining Jones Day, Joan was the longest serving chief council in Division of Enforcement at the SEC, where she played a key role in establishing enforcement policies.
Financial markets practice partner, Josh Sterling has 20 years of experience and the derivatives and security markets, both as lead council to major companies and as a senior federal financial regulator. He represents clients that are active in the derivatives markets with matters before the US Commodities Futures Trading Commission, the US Securities and Exchange Commission and various self-regulatory organizations. Prior to joining Jones Day, Josh was director of the CFTC's Market Participants Division, which regulates the 3,300 banks, intermediaries and asset managers registered with the agency to trade derivatives in the US markets.
And Brian Rabbitt is a seasoned litigator with deep experience handling complex litigation and sensitive investigations in enforcement matters at the highest levels of government. A partner in the firm's government regulation practice, he provides strategic counseling and representation to clients facing high profile, high stakes, civil and criminal matters involving the DOJ, the SEC, the CFTC, state attorneys general and other government authorities. Prior to joining Jones Day, Brian was the acting assistant attorney general for the DOJs Criminal Division.
Joan, Brian, Josh, thank you all so much for being here today.
Joan McKown:
Thank you, David.
Brian Rabbitt:
Thanks so much, Dave.
Josh Sterling:
Really appreciate it.
Dave Dalton:
Thank you all. This is going to be a great, great topic. Interesting developments lately. We've got a lot to cover, so let's get rolling and we'll go right to Joan with question number one. We're going to talk about some recent SEC developments, Joan. Talk about SEC v. Panuwat. This involves so-called shadow trading. Give us some background details, if you could.
Joan McKown:
This is one of the most interesting insider trading cases to come out in quite some time from the SEC, David. And basically the facts, what happened was Matthew Panuwat, who was at the time, the head of business development at a company called Medivation, which was a midsize oncology focused biopharmaceutical company.
Anyway, Matthew purchased short term out-of-the-money stock options in Incyte Corporation, which was a similar corporation to Medivation. And he did that on August 22nd, 2016, just days before Pfizer announced that they would acquire Medivation at a significant premium. So his stock purchases were in Incyte Corporation, not the company he worked at, which is what employees usually get caught at with insider trading, right.
Dave Dalton:
Right.
Joan McKown:
But instead, it was another company that had been focused on by the investment bankers when they were in highly confidential talks regarding acquisition of Medivation. Now, one thing that's really interesting is Medivation's insider trading policy expressly did not allow their employees to use confidential information that they acquired at Medivation to trade, not just in the securities of Medivation, but in any other publicly traded company.
Following the announcement of Pfizer's acquisition of Medivation, in fact Incyte stock price increased by approximately 8%. So the SEC would say that this meets all the touch points that you need to meet for insider trading. It was material, it was non-public information that they allege Mr. Panuwat traded in, in breach of his fiduciary duty to Medivation. So very interesting case.
Dave Dalton:
So, Joan, he's charged with breaking inside trading laws, but there is also an internal thing. He broke his own company's policies or rules?
Joan McKown:
He did. The violation of the law is the actual trade and that violates ... Insider trading is really charged by the SEC currently under general anti-fraud provisions. But the reason they point to the company's policy is it's part of their allegation that he breached his fiduciary duty to Medivation.
Dave Dalton:
That's clear. Thank you for that. Let's go over to Brian Rabbitt. Brian, talk about where this case stands right now and what are the potential implications should the SEC prevail in this?
Brian Rabbitt:
Thanks, Dave. Joan's right, this is a case that's gotten quite a bit of attention among the securities defense bar over the last several months due to the novel issues that it raises, specifically, because Joan mentioned whether trading in the shares of a competitor company can be a breach of a fiduciary duty to an employer, whether the information that the defendant had was material to the trading that was at issue.
So these are all issues that other commentators and the defendant raised in a motion to dismiss. That was actually denied by the district court last week. So fairly recently the district court ruled that the case can in fact proceed and it will now proceed to discovery and potentially trial down the road. And in denying the defendant's motion to dismiss they've ... the court cited the relatively broad language of section 10(b) of the Securities Exchange Act, which refers to any manipulative or deceptive device concerning any security.
Similarly, broad language in the rule that the SEC has adopted. And he held that the information about one company, in this case the defendant's employer, can in fact be material to trading in the securities of another company. And the court also held that the SEC had adequately pleaded that a small number of companies that were operating in this biotechnology space that the defendant's company was active in, could make the information that he had material more broadly, not just to his company, but to competitors as well, such as the company whose securities that he traded in.
So it's not terribly surprising that the motion to dismiss was denied and that the case is going to proceed. The case raises some important questions going forward. If the SEC is able to either prevail at trial or to obtain a resolution with the defendant it'll raise questions going forward about their strategy, where they'll draw the line in cases like these, and then how it will apply the theory to non-executives such as, for example, hedge funds or other funds that may have material non-public information regarding one company, but may also be trading actively in the market securities of related companies.
They may not think at present that they have material non-public information regarding those other companies, but as this case demonstrates, there are certain times when the SEC will say, "Material information about company A could impact your trading as to company B". Where the SEC draws that line going forward will be an interesting thing to watch if they are able to prevail ultimately in this case.
Dave Dalton:
Sure. And that is interesting. It seems to me after decades of securities law, something like this would've been decided before. Yeah, it wasn't his company, but it's a pretty small community. They all know what everybody else is up to. It seems like this kind of matter would've moved forward before. Brian, is there case law or is there some precedent that gives you an idea of where this might come out or is this really new and unique?
Brian Rabbitt:
There's obviously case law around the margins that inform some of the questions that are raised by the litigation, but in terms of directly on point cases, I think most would say that this is a relatively unique set of factual circumstances and that the SEC is treading new ground here in many respects. So for that reason, as Joan pointed out, it's a very interesting case to watch.
Dave Dalton:
It sure will be. And obviously we've got a long way to go here, but Joan, what would you tell your clients right now with compliance responsibilities tied to insider trading, given the development so far in this case? Is there anything to take away at this point or is it let's wait and see where it all comes out?
Joan McKown:
I would not wait and see. I would realize that we're in a period right now with a very aggressive SEC in the enforcement division certainly, if not everywhere. And so I know that some people have looked at this and said, "Well, if the company's policy hadn't forbidden trading in using this information that you gained from your employer to trade another company stock, then Mr. Panuwat maybe wouldn't be in trouble right now."
Dave Dalton:
I see.
Joan McKown:
However, I think that's the wrong approach. I think that what you need to do is look at this and say, "That is the right policy." And a couple of thoughts here, number one, there's the difference and people don't always make this. There's the difference between defending a case. I think this case is defendable. Panuwat has some very good defenses available to him. But there's a difference between that versus what you would advise regarding someone in advance of a trade.
And I do think that, as a company, certainly you need to think about insider trading investigations are a huge financial and time wise resource drain. You do not want to be investigated. Once the government's in they're in, even though they may be looking at insider trading. And there are cases where this has happened, where they were in looking at insider trading and they went, "Oh, what's this over here?" And went in a completely different direction.
So you do not want to be investigated. One of the things you need to do is think about compliance policies so that you can avoid this type of investigation that takes up so much time. In terms of, Brian nailed it, I mean, the issue here is not just individual trading, which is what this case is facially about, but what about the hedge funds and others who trade often based on broad information they have?
They possibly could still argue that they did not have non-public information, basically just knowing what's going on in the market. It was that Mr. Panuwat had more specific information. He knew that this was one of the companies that was considered a similar company to Medivation. And so he had more information than just what a hedge fund would know about a market. But still very interesting.
Absolutely. And we'll watch this one as it moves forward. I have a hunch we'll be talking to all again about this as it moves along. Fascinating case. Let's move over to another one, that being SEC v. Clark. Brian, this was a loss for the SEC. And some of the reading I did preparing for this indicates that the decision was somewhat surprising. Tell us what happened.
Brian Rabbitt:
This is a little bit a mirror image of the case we were just talking about in that it is remarkable for how unremarkable it was. It was, to the extent there's ever a fairly straightforward or fairly common insider trading case, this was one of them. To give you some background, you had a defendant who allegedly received and traded on confidential information that he allegedly received from his brother-in-law about a merger involving an IT consulting firm where the brother-in-law worked.
And the SEC leaded and introduced at trial, a whole wealth of circumstantial evidence that showed the two talked frequently, that the defendant engaged in trading that was unusually aggressive for his trading history, that he borrowed money to finance some of the trades in advance of this merger that his brother-in-law knew about. And that all of this was out of keeping with his historical trading patterns, which the SEC pointed to statistical and other data driven evidence to establish.
At the close of the government's case the defendant moved for a directed verdict. Again, relatively unusual for those to be granted. It's actually relatively unusual for insider trading cases to go to trial, but also unusual for a court to grant a Rule 50 motion mid-trial, but the court in fact here did do so. He dismissed the case mid-trial, before the defendant had even put on his case, basically held that the government, that the commission had not established that the defendant had received and traded on material non-public information, despite the circumstantial evidence that the government had introduced over the course of their case-in-chief, they argued showed exactly that.
Dave Dalton:
Okay. And we'll move on to Joan in a second. But Brian, when the court renders a decision like that, they put an opinion down or an explanation, or they just, "Here's our decision." The way you laid this out it seemed to me, there's no sure thing, but it sure seemed clear to me. Was there some rationale that the court let everybody know about after?
Brian Rabbitt:
Absolutely. And you're right, sometimes the courts will issue written opinions. Sometimes they'll just rule from the bench. Here, the court articulated its ruling from the bench. So there's a transcript that we have and essentially the holding was what I just laid out, which was that the government had introduced a whole host of circumstantial facts that tended to show that the defendant and his brother-in-law had been in touch with each other, that the defendant had engaged in unusual trading that was atypical for him.
He had borrowed a significant amount of money. But what the court seemed to require the government here was some sort of further showing that showed that the defendant actually received material non-public information that was the basis of his trades. And when you boil down the ruling, it seems that the judge was imposing a fairly high bar on the SEC at this stage of the case, higher than I think you might see in a typical case like this.
Dave Dalton:
Sure. Let's go back to Joan for a second. Joan, how much does the SEC usually rely on statistical evidence or this kind of data to prosecute a case? That's typical, correct?
Joan McKown:
What's typical, David, is for the SEC to find a case using statistical evidence. In other words, the SEC has been highly successful in using data analytics to find aberrational trading and to investigate it. However, remember that insider trading is based on the standard anti-fraud provision. In order to prove the anti-fraud provision, you have to prove scienter, that the person knew that there was a violation of the law.
Statistical evidence does not provide that the evidence of that knowledge that it was either intentional or reckless. And so in this particular situation, statistical evidence that the court was saying, "You've shown statistics and you've shown their suspicious trading, but suspicious trading has never been enough." And so in this situation, I think the court was just reiterating there's many more insider trading investigations that the SEC does than they bring cases.
Okay, let's go back to Brian for a second. Brian, were there unusual factors at play here? In the notes that you were kind enough to put together to help me prepare for this you mentioned maybe even the venue possibly played a role?
Brian Rabbitt:
It's possible, Dave, and obviously it's hard to speculate. This case was tried in the Eastern District of Virginia, the Alexandria Division, which obviously many of the SECs insider trading cases are brought in the Southern District of New York, the Eastern District of New York, other cases. So it is possible that the judge at issue here was maybe a little less familiar with the way the SEC typically approaches these types of cases.
In terms of the factors that were at play, as Joan pointed out, the SEC has very robust capabilities in the data analytics space that they use to develop leads and investigate cases. And by the way, those are tactics that have been copied and used by Josh's old agency at the CFTC to develop cases, as well as the DOJ. We use them to develop leads in a number of different areas and have been very forward leaning in terms of use of data analytics.
But as Joan points out, that's not enough to prove a case. It's enough to get the investigators going and it can be relevant evidence, but often more is required. That's really what was at play here. The judge was saying the statistical evidence alone, circumstantial evidence alone, didn't quite clear the bar in his mind. It's important to note that the SEC noted an exception and they could potentially appeal the ruling and the fourth circuit could send it back. So the book is not done yet, but at least at the trial stage, the court seemed to be fairly demanding of the SEC after their case-in-chief.
Dave Dalton:
Sure. Well, Brian, that's a brilliant segue into my next question for Joan, because I'm wondering, could this decision change or impact how the SEC pursues these cases? Is this dramatic enough for a game changer as it were?
Joan McKown:
One would hope that they would at least take notice and they would think about this. We are entering a period where there's going to be more cutting edge cases that are brought by the SEC. Now, David, they still have to prove violation of law. And this is a good reminder that you still have to prove. You can't just be aggressive and say, "We're going to be more aggressive in filing." And I don't think they are. I do think the SEC is going to be focused on the evidence, but it's a good reminder for everybody that you have to actually prove all the elements.
Dave Dalton:
Okay. Shifting gears slightly here, this isn't a case we're about to talk about, but a proposal by the SEC. In December the commission proposed amendments that would significantly alter the ways in which issuers, directors and officers adopt and utilize Rule 10b5-1 trading plans and the way issuers disclose share repurchases. Hey, Brian, talk about why this is significant and give us an overview of what would change if this proposal is adopted.
Brian Rabbitt:
You're right, David, this is not a case so much as a way to avoid a potential case. 10b5-1 plans provide public company insiders and public companies in certain circumstances an affirmative defense to claim that the insider or the company traded securities of the company on the basis of material non-public information, a violation of Section 10(b) and Rule 10b5.
The insider or the company has to demonstrate that the trade was made pursuant to a plan that was pre-established. It was in place at the time the insider became aware of material non-public information, as well as to meet certain other requirements. These plans are pretty important for company insiders who may come into contact with all sorts of non-public information in the course of their jobs, but still have significant holdings in company securities that they want to sell to diversify their holdings or for income or for tax purposes.
The original rule was implemented in an effort to give these individuals a way to sell stock while not running afoul of insider trading prohibitions. With that being said, the plans have actually attracted significant attention and some controversy in recent years. Criticisms have included the fact that there's really no cooling off period or gap that has to take place after an executive enters into or creates a plan before they can actually start trading.
They can cancel plans at any time and insiders can have multiple overlapping plans, which when you combine that with the ability to cancel a plan, critics would say allows for some maneuvering on the part of insiders in terms of their trading around the receipt of material non-public information. Chairman Gensler has been sensitive to these criticisms, as have a number of other commissioners, including the Republican commissioners and Chairman Gensler actually signaled over the summer that he thought the rules governing these plans were overdue for an update.
And he asked the commission staff to take a look at several potentials for reform and change. And that's what you saw recently with the proposed amendments. Proposal makes changes to the requirements, among other things, to the requirements for evoking the affirmative defense that's available under 10b5-1c. To summarize for you, Dave, without covering all the details, the proposed changes hit some of the major criticisms that I had just mentioned.
They institute a 30 day cooling off period for a company that has a plan that trades in its own stocks or 120 day cooling off period for directors and officers after the creation of a plan. It requires a written certification to the issuer that the executive is not aware of material non-public information at the time the plan is created. Among other things, there's no affirmative defense available if an insider has multiple overlapping 10b5-1 plans, and there are certain limits that the proposed changes impose on so-called single trade plans, plans that execute just one trade in the issuer stock.
The proposal does a number of other things as well. It would also require enhanced disclosures from the company, from issuers regarding 10b5-1 plans, regarding option grants, as well as their insider trading policies and procedures. So going back the Panuwat case that we were talking about a little bit earlier, the insider trading policy in that case was obviously central to the prosecution there. That would be something that would have to be disclosed by an issuer under these new rules publicly. And there's a number of other changes that the proposal would make, if adopted.
Dave Dalton:
Joan, let's go back to you for a second and talk about what potentially happens next. Now, again, reading up before we started recording, there was a 45 day comment period where I guess potentially affected parties can get to the SEC and say, "Look, here are our concerns or here's what we think". All right. So that would be, by my math, probably coming up in early February or so. Anyway, the comment period's almost done. What happens next, Joan, in a situation like this?
Joan McKown:
And I would say, David, by the way, in terms of the comment period, you should try to get in within that time period. However, the SEC will accept comments after that point in time. The comment period's extremely important. There's a lot of changes here. Obviously, the SEC doesn't really like issuer repurchases, and they also had a sweep regarding 10b5-1 plans that didn't bear a ton of fruit. It did bear some fruit.
Joan McKown:
And so this is another approach to dealing with that situation, but this was the proposing release. And what comes after the comment period is potentially the adopting release. The SEC staff will take all of the comments that are submitted. They'll review them. They will then go to the commission and advise as to what comments have been received, what potential responses to those comments are, or whether there should be tweaks or changes in the proposed rule making. And so what's next though, is the adopting release.
Dave Dalton:
And when might that happen? Could that be soon or does this take another six months or a year, or what's your guess in terms of when something might be adopted?
Joan McKown:
It could be on day 46. It could be never. So David, take your pick. It could be anywhere in between.
Dave Dalton:
Gambling's a sin. I'm not going to put any money on this one, Joan.
Joan McKown:
Okay.
Dave Dalton:
I'll just be watching and I'll see when this ultimately happens, if it does, but great summary there. Thanks so much. All right, we're going to move over to Josh Sterling, who's been suspiciously quiet, but we are moving over to an area where I know Josh is going to have a lot of great information for us. We're still talking about enforcement, but Josh, historically, the CFTC didn't always play a high profile role in enforcement on insider trading matters, but that changed with Dodd-Frank, didn't it?
Josh Sterling:
Yes. Dave, thank you very much. And I have to say, I'm glad I was on mute for the last 20 minutes or so, because I kept finding myself saying, aha, and I see. So it's been a pleasure to listen to Joan and Brian talk about the security sides of things.
You're absolutely right there, Dave, that this CFTC really hadn't had much to say in the area of insider trading. Dodd-Frank was a change for that. Dodd-Frank conferred powers to the CFTC and the CFTC ultimately adopted some anti-fraud rules that very much resemble the security's law rule under which insider trading cases are brought and that's Rule 10b5. And the CFTC rules, in particular Rule 180.1, you get to anti-fraud issues and considerations using very much the same language that the security's laws do.
So it follows that if you're going to have the ability to, and do bring cases for insider trading as a type of fraud or wrongdoing under 10b5 in securities land, you could do that under rule 180.1, let's say, in CFTC land. And so there have been cases on insider trading since Dodd-Frank and they continued through last year, not only on the misappropriation, the stealing of information, idea when you're under a duty not to disclose, and then the tipping theory of liability as well.
So you had a duty and you gave that information to someone else who traded. And that's been a little bit more rare. I guess the last thing I'll say by way of introduction is when you go through and look at a number of the CFTC cases on insider trading, you're going to find in there some other form of wrongdoing, which is to say some sort of fraud or a manipulation of a market, misleading investors, trading against them without disclosing it. And so you have all this conduct, it was already unlawful or alleged to be unlawful under the Commodity Exchange Act, but now you're getting to the way information is shared in a market.
This is probably a subject for a law review article or something, but there is a difference between the derivatives markets on the CFTC side and the securities markets on the SEC side, where at the SEC their capital formation and capital accumulation markets, you own stock, you own a bond. You hope it goes up in value, pays you some income and so forth.
Dave Dalton:
Right.
Josh Sterling:
There's no intrinsic value to a derivative. You either you make money on it or you don't and its term ends, or it expires or something. And so you're trying to dump a lot of information into a derivatives market to discover a price. Now that's true for stocks and bonds too, but there's no intrinsic value over here. So I always wonder if there's some connection between that and the need for an insider trading theory of liability, because you're jeopardizing the ongoing value of something, wherein as here, we're talking about a trade in a market in a period of time it ultimately goes poof, but I digress.
Dave Dalton:
Josh, can you cite some examples, in terms of the types of enforcement action, the CFTC is currently involved with, whether it's the types of cases or particular matters, what have they been doing?
Josh Sterling:
Yeah. Dave, I'll give you a couple recent examples in this insider trading area, really from the last year. There was a case that came out in December involving the individual defendant, Peter Miller and his firm Omerta Capital. And this was an insider trading action under a tipping theory of liability. Miller used information that was provided by the energy trader at his company. So there's your misappropriation of information. The trader at the company shouldn't have given it to someone else.
Dave Dalton:
Right.
Josh Sterling:
And then he also received information coming from certain brokers that basically had given him a tip and based on this information, he entered into fictitious block trades. So that are sort of large positional trades, in this case in natural gas futures, and was able to exploit that information to make a profit. And so there's this element of tipping to it in this case. It's also a case that's being brought in parallel with the Department of Justice. So some parallel proceedings there and I know we've talked about that before.
So that's one example. Another example real quickly from earlier last year in October of '21, a company called Coquest, Inc. was involved in enforcement actions. And that is an introducing broker. So someone who brings people together to trade in the markets and is registered in that capacity with the CFTC. In this case, the introducing broker is alleged to have misappropriated or taken unlawfully information about trades that its customers wanted to put on.
And the owner of this introducing broker traded in the futures and options market opposite those customers accounts using companies he controlled. And so the trading was done at a higher price than the market price. They were negotiated off exchange and he captured the difference between the market price and the higher price. And so there again, you have some sort of fraudulent misconduct and it's being treated as a form of insider trading. Fair enough. But you do have fundamentally anti-fraud issues involved, whether you call it insider trading or not, I think that's the salient point.
Dave Dalton:
Absolutely. Let's go back to Brian for a second. Brian, what do we take away from the kinds of cases that Josh just mentioned from a compliance perspective? What does a listener better know from this?
Brian Rabbitt:
There's one key lesson to take away from all of this, which is that the CFTC has dedicated significant resources to standing up an insider trading program since Dodd-Frank in bringing the cases that Josh has mentioned and establishing a task force dedicated to this issue. The CFTC has sent a message that this is going to be an enduring priority for the enforcement division going forward and that even though many of these cases could have been pursued as traditional commodities' fraud cases, the CFTC has made a decision to pursue them as insider trading matters.
That's something that's going to continue going forward. So from a compliance perspective, traders and their employers need to be mindful of the CFTC's new approach. They need to be very careful in how they think about where they get their information and how they use that information, what they do with information that they receive from various sources when trading. It goes back to the point that Joan and I were making earlier with some of the funds receiving material nonpublic information in one area, potentially trading in related areas in the Panuwat case that we were talking about before, again, having processes and procedures in place to make sure that you know what information is coming in and you know what's being done with it and accounting for the CFTCs new approach going forward.
Right. You're certainly better off knowing and preparing, that's for certain. Okay. Josh mentioned parallel proceedings a couple minutes ago, and we have talked about this on previous programs. So this is something that we ... a bit of a review, but in terms of CFTC and inside trading, it's new for us. Josh, talk about collaboration and enforcement actions. The CFTC and the DOJs Criminal Division's fraud section have worked fairly closely together on insider trading matters. Is that correct?
Josh Sterling:
Yes, it is. And that's consistent with other collaboration they've had in cases that didn't involve insider trading, but were more grounded in fraud and manipulation. And so there is a strong working relationship between enforcement on the one hand at the CFTC and the criminal division and task forces within it to pursue these actions. And I think where there's an item that's highlighted as a priority as commodities fraud continues to be those agencies work well together, CFTC taking the civil enforcement approach and being the expert agency and then, DOJ having even more investigative firepower and of course criminal authority where it's necessary to bring that to bear.
Dave Dalton:
Sure. And back to Brian, and again, we're looking back at some history or how working relationships have developed, but looking back, Brian, the DOJ and the SEC have worked together on insider trading cases. There's some history there, right, Brian?
Brian Rabbitt:
Absolutely. The DOJ and the SEC have long collaborated in this space. Obviously it's, as Joan will tell you, it is not the case that every insider trading action pursued civilly by the SCC also gets attention from the criminal authorities from DOJ, from one of the US attorney's offices. But certainly the two agencies have worked closely together for many years on high profile and less high profile insider trading matters.
As Josh alluded to, the parallel proceedings, the parallel investigations that the CFTC and the DOJ are pursuing in this space appear to be something of a new development. It's an outgrowth of some of the other areas that the CFTC and DOJ have collaborated on in recent years, whether that's foreign corruption or market manipulation, but there seems to be a developing partnership in the insider trading space here as well, that mirrors and builds on the partnership that DOJ and the SEC have had for many, many years.
Dave Dalton:
And Josh, Brian picked up on a key point, the fact that relationship had been established and I'm sure with a lot of success stories, it was just natural that would evolve into something that would examine and investigate potential insider trading. Correct?
Josh Sterling:
That's fair. And I know that going back almost 10 years ago, when the rules got put on the books under Dodd-Frank for the CFTC to more easily pursue fraud cases in particular, as well as some manipulation cases. There is a statement made at an American Bar Association conference by the enforcement director at the time, basically saying we need to develop a body of public law in insider trading.
And if I recall right, he wasn't limiting that just to the CFTC and there's been a concerted effort to bring cases, make law. If you get into court and a decision needs to be rendered, an opinion needs to be written. And so I do think there's been more collaboration on that front between the two agencies, just as there has been in the areas Brian articulated, and as well as in the case of disruptive trading or spoofing being one common form of that, where they've really worked hard together.
Maybe those cases are becoming less of a priority, although if there's a disruptive trading and manipulation case, I'm sure it'll be brought, but insider trading is a way of enforcing conduct that they believe can affect market prices. I think that will continue and they have the power to bring it in every market the CFTC regulates.
Dave Dalton:
Sure. It's fair to expect that this trend would likely continue. Panel, this has been great, lots of wonderful information. Let's wrap it up with this. Brian, two things, as someone with the background at the Justice Department, do you agree with what Josh just said in terms of these trends and this type of enforcement, A and B, are there bigger or other developments that maybe we ought to be watching for moving forward?
Brian Rabbitt:
I do agree with Josh. I alluded to a little bit earlier, the CFTC and the DOJ in recent years have really worked closely in a number of different areas, including these new insider trading cases in the commodities space. And those partnerships that have developed, those relationships are only going to endure. You'll continue to see the CFTC and the DOJ coordinating in this area, building on the DOJs track record with other agencies like the SEC going forward, get something that's here to stay.
In terms of other developments, it's obviously always hard to predict. One thing that I am always on the lookout for, and I know Joan is as well, is whether there will be insider trading legislation introduced and adopted. It codifies a lot of the loss surrounding insider trading that we all live under. As we saw from talking about the Panuwat case earlier, a lot of the law in the insider trading space is created by the courts and there are a lot of gray areas. There are a lot of untested and new areas. And so something that is often brought up is the possibility of codifying some of that and spelling out clear standards in legislation. It's always worth watching those bills when they're introduced on the hill to see whether they get any traction and whether we do see some legislation in this space going forward.
Dave Dalton:
Hey, very interesting stuff, panel. Great conversation today. We're going to watch all these developments. We're going to leave it right there for today. Joan, Josh, Brian, thanks so much for being here. And we're going to talk again very soon.
Joan McKown:
Thanks, David.
Brian Rabbitt:
Thank you, Dave.
Josh Sterling:
Thank you.
Dave Dalton:
Take care. You can find complete biographies and contact information for Joan, Josh and Brian at jonesday.com. While you're there, make sure you visit our insights page for more podcasts, videos, publications, newsletters, blogs, and other topical information. Subscribe to JONES DAY TALKS® at Apple Podcast and at other podcast platforms. JONES DAY TALKS® is produced by Tom Kondilas. I'm Dave Dalton. Thank you as always for listening. We'll talk to you next time.
Speaker 5:
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