In the US, the DOJ may agree to settle insider trading charges against companies through a declination or a negotiated resolution that may take several forms, including a non-prosecution agreement (NPA), deferred prosecution agreement (DPA), or a guilty plea.
A declination is an exercise of the government’s discretion not to bring charges when the facts would allow it to do so. Traditionally, declinations were not made public unless the company disclosed its receipt of a declination in a securities filing or other public statement. In 2016, however, the DOJ began publicly disclosing some declinations in order to demonstrate transparency in its decision-making. This practice has continued under the Corporate Enforcement Policy in the form of one- to two-page letters that briefly describe the company’s misconduct and the circumstances of the declination. Public declinations are rare in insider trading cases.
Under an NPA, the government maintains the right to file charges but refrains from doing so to allow the company to demonstrate its good conduct during the term of the NPA. The NPA is not filed with a court, but it is made available to the public. An NPA will generally require a waiver or tolling of the statute of limitations, ongoing cooperation, admission of the material facts, compliance and remediation commitments, and the payment of a monetary penalty.
Under a DPA, the government publicly files a charging document and simultaneously requests that the prosecution be postponed for the purpose of allowing the company to demonstrate its good conduct. DPAs generally require a defendant to agree to pay a monetary penalty, waive or toll the statute of limitations, cooperate with the government, admit the relevant facts, and enter into certain compliance and remediation commitments.
Rather than pursue litigation, the SEC may agree to settle insider trading charges against companies or individuals. As part of a resolution, it is common for the defendant to agree, without admitting or denying the SEC’s allegations, to the entry of permanent injunctions against engaging in similar conduct going forward, in addition to disgorgement of profits, prejudgment interest, and a penalty that is typically a multiple of the ill-gotten trading profits.
In the UK, there are limited alternatives to enforcement action available to address insider dealing. Theoretically, a person subject to a FCA enforcement action can agree to a financial penalty rather than contest a formal enforcement action, but in reality and in the current climate, the FCA is keen to demonstrate that it is taking a firm stance on insider dealing. Therefore firms and individuals should expect the FCA to use all of its enforcement powers if the thinks there is a credible case to answer.
The FCA can, however, require firms to examine their conduct and take necessary remedial action or ask firms to voluntarily accept a variation of permission or the imposition of a requirement (VREQ). The imposition of a requirement is part of the FCA’s early intervention program by which FCA action is used to eliminate or reduce an ongoing risk to consumers or markets. VREQs contrast with own power initiatives (OIREQ), where the FCA requires a firm (as opposed to agrees with a firm) to impose restrictions on its activities or change the way it conducts business. OIREQs will be imposed where a firm refuses to voluntarily accept a VREQ.The FCA would also expect a firm to make any changes to its systems and controls and/or compliance program as recommended in a Section 166 report.