1. Copyright© 2010 WeComply, Inc. All rights reserved. 5/15/2015 Avoiding Insider Trading

2. Copyright© 2010 WeComply, Inc. All rights reserved. 5/15/2015 Avoiding Insider Trading

3. Copyright© 2010 WeComply, Inc. All rights reserved. 3 Overview Laws prohibiting insider trading — Maintain a level playing field Promote faith in integrity and fairness of stock market Encourage investment Trading based on material, nonpublic information is illegal Applies to directors, officers and employees Prohibits buying/selling securities based on material, nonpublic information Prohibits tipping others to buy/sell based on that information Includes non-employees who trade on nonpublic information from others

4. Copyright© 2010 WeComply, Inc. All rights reserved. 4 Overview (Cont’d) Laws prohibiting insider trading — Maintain a level playing field Promote faith in integrity and fairness of stock market Encourage investment Trading based on material, nonpublic information is illegal Applies to directors, officers and employees Prohibits buying/selling securities based on material, nonpublic information Prohibits tipping others to buy/sell based on that information Includes non-employees who trade on nonpublic information from others

5. Copyright© 2010 WeComply, Inc. All rights reserved. 5 In the news…

6. Copyright© 2010 WeComply, Inc. All rights reserved. 6 What Information Is "Material"? Information is considered material if — there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision, and it would significantly alter the "total mix" of information made available about the company Material information includes — Earnings information Mergers, acquisitions or joint ventures Developments regarding customers or suppliers Changes in control or a change of auditors Events regarding company stock Bankruptcies or receiverships

7. Copyright© 2010 WeComply, Inc. All rights reserved. 7 Pop Quiz! An investor obtains "inside" information that XYZ Inc. is planning to send cheesecakes to its clients as a holiday gift. The investor considers this very significant, because XYZ has only sent calendars in past years. The investor proceeds to load up on XYZ stock. Is there an insider-trading issue here? A.No, since a reasonable investor would probably not consider this information significant. B.Maybe, if there's a material difference in cost between sending calendars and cheesecakes. C.Yes, because the information was very significant to the investor.

8. Copyright© 2010 WeComply, Inc. All rights reserved. 8 What Is "Nonpublic" Information? Nonpublic information has not been released to investing public Determining factors: How information was disseminated How much press coverage company receives How much analysts monitor and report on company Market is allowed reasonable time to absorb information after publication

9. Copyright© 2010 WeComply, Inc. All rights reserved. 9 Who May Be Liable for Insider Trading? Insider-trading laws cover wide range of individuals and activities Directors, Officers and Employees Job title isn't determinative Issue is whether individual misused material, nonpublic information — regardless of how information was discovered Controlling person may also be liable for failing to prevent insider trading by someone under his/her supervision

10. Copyright© 2010 WeComply, Inc. All rights reserved. 10 Who May Be Liable for Insider Trading? (cont’d) Insider-trading laws cover wide range of individuals and activities Directors, Officers and Employees Job title isn't determinative Issue is whether individual misused material, nonpublic information — regardless of how information was discovered Controlling person may also be liable for failing to prevent insider trading by someone under his/her supervision

11. Copyright© 2010 WeComply, Inc. All rights reserved. 11 Who May Be Liable? (cont’d) Family Members, Friends and Business Associates Employee with access to material, nonpublic information is "tipper" Person who receives and acts on inside information is "tippee" Both tipper and tippee may be liable for insider trading Tippee may also be liable as tipper as to others

12. Copyright© 2010 WeComply, Inc. All rights reserved. 12 In the news…

13. Copyright© 2010 WeComply, Inc. All rights reserved. 13 Who May Be Liable? (cont’d) Individuals Indirectly Involved with the Company Temporary insiders Includes lawyers, accountants, consultants, employees of other companies Both temporary insider and tippee can be liable Anyone who helps someone else engage in insider trading can be criminally prosecuted

14. Copyright© 2010 WeComply, Inc. All rights reserved. 14 Who May Be Liable? (cont’d) Individuals Indirectly Involved with the Company Temporary insiders Includes lawyers, accountants, consultants, employees of other companies Both temporary insider and tippee can be liable Anyone who helps someone else engage in insider trading can be criminally prosecuted

15. Copyright© 2010 WeComply, Inc. All rights reserved. 15 Penalties Penalties for insider trading are severe Fines up to three times amount gained or loss avoided Imprisonment for up to 20 years and fines up to $5 million for willful violation Violations by high-level employees can lead to fines of up to $25 million and civil lawsuits

16. Copyright© 2010 WeComply, Inc. All rights reserved. 16 Insider Trading and Regulation FD Regulation FD addresses selective disclosure — disclosure of material, nonpublic information to stock analysts and/or large investors before disclosing information to the public Similar to "tipping" Causes ordinary investors to lose confidence in fairness of the stock markets Regulation FD requires public companies that disclose material, nonpublic information to securities market professionals and shareholders to disclose that information publicly at the same time

17. Copyright© 2010 WeComply, Inc. All rights reserved. 5/15/2015 Final Quiz

18. Copyright© 2010 WeComply, Inc. All rights reserved. 5/15/2015 Questions?

19. Copyright© 2010 WeComply, Inc. All rights reserved. 5/15/2015 Thank you for participating! This course and the related materials were developed by WeComply, Inc. and the Association of Corporate Counsel.