SEC SUES FUND DIRECTOR FOR USING BOARD MEETING INFO TO ENGAGE IN INSIDER TRADING
An outside, disinterested director of a business development company settled insider trading charges brought by the SEC, who charged that the director utilized material nonpublic information learned at a board meeting. According to the SEC, the defendant learned at a board meeting that an acquirer was bidding to purchase a company in which the BDC owned a 25% interest. The SEC alleged that the director purchased shares of the target in the months leading up to the acquisition. The SEC explained that the director owed a fiduciary duty to the BDC to maintain the confidentiality of any information learned at a board meeting. The SEC noted that another board member had warned the board that the information was nonpublic.
Our take: Board members must maintain the confidentiality of any information learned at a board meeting regardless of how they intend to use the information. Certainly, insider trading violates the fiduciary duty. However, the duty of confidentiality is absolute and would apply to any communications of information learned at a board meeting.