The SEC requires employees to maintain confidentiality

On Behalf of | Aug 6, 2021 | Financial Crimes

Employees of corporations with stocks trading on a national exchange owe a duty to keep material nonpublic information confidential. Sharing the information with others may raise allegations of insider trading, according to the U.S. Securities and Exchange Commission.

SEC rule violations include buying or selling a company’s stock based on confidential information received from an insider. Employees and their associates or family members alleged to have breached their duty of confidentiality may face federal insider trading charges.

Fiduciary duty transfers to individuals close to an employee

When companies provide employees access to nonpublic information to perform their jobs, there exists a duty to maintain confidentiality. The duty also passes on to an employee’s spouse, children and other household members.

If an employee, for example, shares confidential information with a spouse during a casual conversation, his or her spouse must refrain from trading on it. The spouse also takes on a fiduciary duty to keep the information private. He or she may then breach a duty of confidentiality by sharing the information with other individuals.

Corporate employee’s spouse charged with insider trading

As reported by U.S. News and World Report, an employee of a profitable technology company had access to confidential corporate information that she worked with as part of her job. She also shared the company’s information with her spouse.

Officials charged her husband with securities fraud for trading on the shared information. As part of a plea agreement that resulted in his wife not facing charges, he admitted to generating significant profits from the information he received from her.

The SEC may file insider trading charges against employees or their spouses when allegations of breaching a fiduciary duty arise. Individuals may, however, make trades on the confidential information they received after the company discloses the information to the public.

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