The US Securities and Exchange Commision (SEC) recently charged 7 Indian-origin persons with illegal insider trading worth $1 million.
3 of the accused worked as software engineers at Twilio, a San Francisco-based cloud computing communications company. According to the complaint, the three had access to the company’s revenue databases and used this to learn that customer usage of its products and services was increasing.
Surmising that this would shoot up the firm’s stock price, the three tipped off their friends to trade in Twilio options and stock ahead of their first quarter 2020 earnings announcement. This scheme ended up making them over $1 million in illegal profits.
There is always a risk of insider trading before companies make their earnings announcements.
Although the coders in question were not in a decision-making position, companies can defend allegations of illegal insider trading levelled against their top executives with the help of a Directors and Officers (D&O) Insurance Policy. And so, costs of lawyers and other court expenses arising out of these lawsuits can be reimbursed.
However, a D&O policy would not be valid if the accused employees are found to be guilty of illegal insider trading as per evidence. This is because almost all insurance policies don’t cover wilful negligence by the insured.
Since the engineers violated Twilio’s policy prohibiting insider trading, and were caught based on their incriminating chat records, no insurance policy can pay for the fallout of their crime.
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