[On October 15, 2020], the SEC announced a settled enforcement action against a public company in connection with the company’s initiation of a stock buyback program while in possession of material, nonpublic information (“MNPI”). [1] The Commission charged the company with violating Section 13(b)(2)(B) of the Exchange Act, which requires reporting companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed, and access to company assets is permitted, only in accordance with management’s authorizations.

Specifically, the SEC found that the company’s decision–approved by its legal department–to enter into a Rule 10b5-1 trading plan to repurchase the company’s shares on the same day that the company resumed previously suspended, CEO-to-CEO merger discussions violated the company’s own securities trading policy, and therefore fell outside the board’s repurchase authorization. Without admitting or denying the SEC’s findings, the company agreed to the entry of a cease and desist order and to pay a $20 million penalty to settle the action.

The SEC’s order highlights a number of important matters for public companies:

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