Clifford Chance
The "Whoa" Factor: The SEC Applies A Novel Theory to 10b5-1 Plans and Sends a Message
November 24, 2020
In October 2020, the Securities and Exchange Commission announced a cease and desist order against Andeavor LLC1, a publicly-traded energy company, relating to a 10b5-1 plan adopted by Andeavor. The SEC concluded that Andeavor possessed material non-public information at the time it entered into the 10b5-1 plan. What makes this order unique is that the SEC did not charge the company with a violation of Rule 10b5-1. Rather, the SEC found that the company's internal accounting controls were insufficient to ensure that the buyback program was conducted in accordance with the corporate authorization for the program, which required that the buyback be conducted in accordance with the company's insider trading policies. This appears to be a first of its kind order in the insider trading area, and in house legal teams in particular should pay attention to the SEC's focus on internal processes and consider making adjustments to their own processes.
