When your stock falls, expect an insider-trading investigation

by Kurt Schulzke on February 5, 2008

On top of everything else, Société Générale now faces European and SEC investigations into possible insider trading. Today’s Wall Street Journal headline reads “SEC Probes French Bank: U.S. Investigation of SocGen Focuses On Stock Sales.”

When a publicly traded stock falls dramatically, you can expect market regulators to begin trolling for impropriety in trades by insiders preceding the price decline. In SocGen’s case, the company has denied wrongdoing by anyone, stating that all trading was done according to the rules.

The investigations highlight, however, what experienced boards and executives know about investigations and litigation: the turmoil and cost that precedes the courtroom is often worse that what actually happens in court. For boards and execs, the best way to mitigate litigation risk is to ensure that company policies conform to the law and are actually followed at an operational level. It’s not enough to have the policy in a book somewhere. Employees — from top to bottom — must understand it and be committed to follow it.