Clayton Mulls SEC Insider Trading Rulemaking Amid Equifax Fears

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By Andrew Ramonas and Rob Tricchinelli

SEC Chairman Jay Clayton said Sept. 26 he will work with lawmakers to strengthen insider trading rules amid concerns Equifax Inc. executives profited from confidential information about the company’s massive data breach.

Clayton said at a Senate Banking Hearing that trading on a company’s market-moving information before public disclosure is wrong, but didn’t comment specifically on whether Equifax executives violated federal law by selling almost $2 million in their company’s stock.

The transactions reportedly took place in the period between Equifax’s discovery of the breach and the company’s announcement about the hacking that exposed information on 143 million users. Clayton also didn’t comment on potential insider trading rules or legislation during the hearing that addressed the Securities and Exchange Commission’s response to the credit-reporting company’s hack.

The SEC chairman said he advised companies on insider trading polices as a lawyer in private practice, helping them create systems aimed at ensuring executives don’t profit on inside information. A “thoughtful insider trading policy” with controls for trading stock on material information are an “important part of good corporate hygiene,” he said.

Sen. Chris Van Hollen (D-Md.) asked Clayton to help him and Rep. Carolyn Maloney (D-N.Y.) with legislation to ensure executives don’t profit by buying or selling company stock before the public is told about market-moving news.

“We can definitely work on it,” Clayton said.

Van Hollen was one of 36 senators who urged Clayton and other federal officials to investigate the Equifax executives’ stock sales for possible insider trading. The U.S. Justice Department launched a criminal probe into the trades and is receiving help from the SEC, Bloomberg News has reported.

No New Rules?

Lawyers told Bloomberg BNA they don’t think new insider trading rules are necessary.

Jeff Kern, a former senior lawyer in the Financial Industry Regulatory Authority’s Department of Enforcement and New York Stock Exchange Enforcement Division, told Bloomberg BNA companies would be best to combat questionable behavior by executives through a strong corporate code of ethics.

“Truth is, insider trading law is too complicated now and has always been a so-called creature of the courts,” said Kern, a New York-based Sheppard, Mullin, Richter & Hampton partner. “If the SEC or Congress is going to undertake the immense task of codifying prohibitions against insider trading, it’s probably not workable to come up with a rule or series of rules that govern particular situations like what happened with Equifax.”

Dennis Kelleher, president and chief executive officer of Washington-based watchdog group Better Markets, told Bloomberg BNA that insider trading law is “black letter law and people go to jail for that if caught.” The SEC should focus on requiring companies to “promptly disclose any and all significant” data breaches, he said.

“In this day and age where the public is so focused and so concerned about hacks—which is really the theft of personal data by criminals seeking to rip them off with the data—the SEC should just make such an announcement and require companies to disclose,” Kelleher said.

During the hearing, Clayton said investors often don’t know about companies’ cyber threats, and “companies should be disclosing more” about data breaches.

“As I look across the landscape of disclosure, and I’ve been saying this for some time, companies should be providing better disclosure about their risk profile,” he said. “Companies should be providing super disclosure about intrusions that may affect shareholders’ investments.”

CEO Hearing

Congress appears set to continue its own inquiries. Former Equifax Inc. chief executive officer Richard F. Smith, who is stepping down in the wake of the company’s data breach, is still scheduled to appear Oct. 4 before the Senate Banking Committee, representatives from the company and the committee said Sept. 26.

Committee Democrats—Sens. Sherrod Brown (Ohio), Jon Tester (Mont.), Brian Schatz (Hawaii), and Elizabeth Warren (Mass.)—called for Smith to honor his previous commitment to attend the hearing on the breach, in which 143 million users’ information was exposed.

“I’d kind of like to know how it happened, how they’re going to prevent it in the future,” Sen. John Kennedy (R-La.), another Banking Committee member, told reporters. “Maybe I should have an alternative of opting out of them collecting information on me.”

“I mean, think about all those in Puerto Rico, Texas and Florida,” he added. “On top of everything else they’re going through, now they’ve got to stop and go put on a credit freeze and worry about their identity being stolen.”

Smith is also still scheduled to attend a House Energy and Commerce Hearing on Oct. 3, that committee said in a Twitter post.

To contact the reporters on this story: Andrew Ramonas in Washington at; Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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