STOCK Act Expands Insider Trading Liability Communicating with Government Officials Carries New Risks

On April 4, 2012, President Obama signed into law the Stop Trading on Congressional Knowledge Act of 2012 (STOCK Act or Act), which, among other changes, explicitly applies federal prohibitions on insider trading to members of Congress, congressional staff, executive branch officials, and judicial officers and employees.  While the Act may appear to be just another ethics-related bill aimed at the activities of federal officials, companies and private citizens should be alert to expanded potential liability of those who obtain information from federal officials and use it for trading purposes. In particular, the STOCK Act creates the potential for new insider trading “tippee” liability for private citizens and organizations that receive material nonpublic information from federal officials who disclose such information in violation of what is now an express statutory duty of trust and confidence owed by federal officials to the US and its citizens.