[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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Earlier this month, the Criminal Division of the Department of Justice updated its guidance for prosecutors to use when evaluating a company’s compliance program in the context of corporate charging and settlement decisions. [1] While the revised guidance is very similar to DOJ’s April 2019 version, [2] it includes substantive updates in a number of areas—including regarding how compliance programs are resourced, how they evolve and adapt, and how they address pre-acquisition due diligence and post-acquisition compliance integration in mergers and acquisitions.

Introduction

As with prior versions, the updated guidance continues to emphasize at the outset that the Criminal Division does not use any “rigid formula” to evaluate compliance programs, and instead states that each company’s risk profile requires “particularized evaluation.” The revisions (italicized below), however, add notable language with respect to the factors DOJ will consider in its individualized determination:

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