In addition to criminal and civil fines, the DOJ and SEC sometimes require a company settling an insider trading matter to retain an independent compliance monitor.  An independent compliance monitor is an independent person appointed by a company or, in some instances, the government, to assess the sufficiency and effectiveness of the company’s insider trading compliance program. 

The scope and terms of a monitorship depend on the severity of the conduct at issue and the state of the company’s compliance program.  The “Morford Memo” instructs prosecutors to consider the following factors in determining the duration of a monitorship: (i) the nature of the misconduct; (ii) the degree of involvement of senior management; (iii) the past history of misconduct in the company; (iv) the corporate culture; (v) the extent of necessary remedial measures; and (vi) the extent to which remedial measures are already underway.1

Often the monitor will have the authority to review policies, procedures, and internal controls and conduct field work to test the implementation of the compliance program.  The monitor will likely be required to submit periodic reports regarding the company’s compliance program to the government regarding the effectiveness of the company’s policies and procedures.  In some circumstances a company settling an insider trading matter may be required to “self-monitor” and report to the DOJ and SEC.

In what some consider to be a departure from previous DOJ policy, in October 2018, the DOJ announced guidance making clear that compliance monitors would be imposed only in exceptional circumstances to ensure compliance with the terms of a corporate resolution and to prevent further misconduct and not as a punitive measure.

In the UK, the FCA expects that most breaches of its rules can be addressed and remedied without the need for enforcement action, particularly where the breach is technical or minor in nature.  Where there is a need for limited enforcement action due to the less serious nature of a violation or breach, the FCA has a range of powers at its disposal.  The FCA can vary a firm’s permission under its Part 4A FSMA powers, impose requirements on a firm’s ability to carry out particular regulated activities, or change an individual’s approvals.  For more on that, see here.

1 Mem. from Craig S. Morford, Acting Deputy Att’y Gen., to Heads of Dep’t Components U.S. Attorneys 7 (Mar. 7, 2008), available here.

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