Business Law and Corporate Law

Nossaman LLP's Compliance Notes newsletter delivers essential updates on regulatory developments, legal requirements, and compliance strategies affecting businesses across multiple industries.

Companies with equity-compensation programs face significant insider-trading risks when employees, officers, and directors trade company securities while aware of material nonpublic information. Rule 10b5-1 trading plans provide an affirmative defense against insider-trading claims by establishing predetermined trading arrangements that satisfy specific SEC requirements, including adoption timing, good-faith certifications, mandatory cooling-off periods, and restrictions on overlapping plans.

When an AI system is trained on material nonpublic information, MNPI, and then used to inform or execute trades, the firm deploying that system may face insider trading liability, even if no human trader ever directly reviewed the underlying data. The SEC has not yet brought a case on this precise theory, but recent enforcement actions, particularly its 2023 settlement with Virtu Financial, establish the compliance framework most likely to govern AI-driven trading. The legal risk is no longer hypothetical.