NYAG’s action against public company for approving executive 10b5-1 plan signals new insider trading risk for US issuers
13 min read
The New York Attorney General (“NYAG”) recently announced a civil insider trading action against the former chief executive officer of a biopharmaceutical company (the “Company”) and a parallel settlement with the Company itself because it approved the executive’s plan to trade.1 This action is notable in several respects: it represents an unusual instance of the NYAG bringing an insider trading action against a corporate executive for trading pursuant to a Rule 10b5-1 plan, and — perhaps more strikingly — it represents a departure from typical federal insider trading enforcement by pursuing the Company itself for approving that plan.2
Less than a year before the NYAG’s action, the U.S. Securities and Exchange Commission (“SEC”) brought a related action against the Company for misleading statements regarding its COVID vaccines.3 Both the SEC and the U.S. Department of Justice (“DOJ”) examined the insider trading issue but did not bring charges.4 This action signals a broader willingness by state authorities to step in to pursue insider trading charges against issuers and executives and the risk of new and variable regulatory standards at the state level.
Background
According to the NYAG’s Assurance of Discontinuance with the Company (the “Company AOD”), the Company is a Delaware corporation headquartered outside of New York. Nonetheless, according to the complaint filed against the CEO (the “CEO Complaint”), the NYAG asserted jurisdiction on the basis that the Company's shares were traded on the New York Stock Exchange (“NYSE”), the CEO's trades were executed through a New York-based investment adviser, the trading plan was governed by New York law, and New York investors — including state pension funds — purchased and sold the Company's shares during the relevant period.5
The Company AOD found that in the summer of 2020, the Company entered into two contracts with AstraZeneca worth a combined $261 million to manufacture a large-scale commercial supply of AstraZeneca’s COVID-19 vaccine. The Company’s stock price rose 43.6 percent in the week following the public announcement. In the months following the announcement, however, the Company experienced manufacturing difficulties, including contamination issues that rendered portions of its production unusable and threatened its ability to meet contractual obligations.
The CEO Complaint alleges that by early October 2020, senior management — including the CEO, who spent extended periods onsite at the manufacturing facility and spoke with his direct reports on a near-daily basis — were fully apprised of the severity of the contamination crisis. Both the CEO Complaint and the Company AOD allege that on October 6, 2020, the CEO received a presentation detailing the aborted, contaminated batches, and that by October 13, 2020, the Company and AstraZeneca concluded that five out of the first seven batches were likely to be lost to contamination and discussed the possible need to stop manufacturing to further investigate. The complaint further alleges that serious contamination issues intensified in late October and early November, and the Company and AstraZeneca agreed to pause production on multiple batches while the contamination issues were investigated.
The CEO Complaint alleges that on the Company’s third quarter 2020 earnings call on November 5, 2020, the CEO told analysts that the manufacturing infrastructure and tech transfer were “essentially complete,” without acknowledging the ongoing contamination problems or the manufacturing delays. The Company's third quarter Form 10-Q, filed the following day, similarly touted the AstraZeneca contracts while omitting any mention of the serious and unresolved manufacturing and contamination difficulties.
The CEO Complaint alleges that on October 14, 2020, the CEO initiated discussions about entering into a Rule 10b5-1 trading plan. The plan was reviewed by the Company's Senior Counsel on November 11 and 12. It was signed by the CEO on November 13, 2020, in the midst of what the CEO Complaint describes as an “all-hands-on-deck” manufacturing crisis and just days after the Company and AstraZeneca had agreed to slow down production.
The Company AOD further alleges that the CEO subsequently sold shares pursuant to the plan in January and February 2021, generating proceeds of more than $10 million. The Company received approximately $2.5 million from the CEO upon exercise of his stock options in connection with these sales. On February 18, 2021, on the Company’s fourth quarter earnings call, the CEO again did not disclose the contamination issues and, the CEO Complaint alleges the CEO made materially false and misleading statements by indicating the Company’s deliverables to AstraZeneca were “right online…timewise.”
In March 2021, the New York Times published an exposé on the Company and in April 2021, the U.S. Food and Drug Administration permanently halted the Company’s production of the AstraZeneca vaccine.6 The Company’s stock price dropped significantly during this period.
The NYAG charged the CEO and the Company with violations of the anti-fraud provisions of New York’s Martin Act (the “Martin Act”).7 The Martin Act authorizes the NYAG to commence a civil action for restitution, disgorgement, and other relief against any person or corporation engaging or participating in fraudulent practices in the purchase and sale of securities within or from New York State.8
The NYAG found that the Company engaged in fraud because it “approved the CEO’s Trading Plan despite the CEO’s possession of material non-public information, and that [the Company] had not disclosed the information at the time of the [p]lan or sales.”9
Notably, unlike federal insider trading laws—which require proof of scienter, i.e., an intent to defraud—the Martin Act has been found to not require proof that the defendant acted with fraudulent intent.10 This lower standard of liability may explain why the NYAG was willing to bring this action after the SEC and DOJ, which operate under the more demanding federal scienter standard, declined to do so. We are not aware of a prior instance in which the NYAG has pursued a company for approving an executive’s trading plan.
The Company agreed to pay the NYAG $900,000 and amend its insider trading policy to require officers and directors seeking approval of a Rule 10b5-1 plan to complete an enhanced trading pre-clearance form containing several representations, including that the executive: (i) is aware of the Company’s insider trading policy; (ii) understands that it is unlawful to trade, or to enter into or modify a Rule 10b5-1 plan, while in possession of material nonpublic information (“MNPI”); (iii) does not currently possess MNPI; and (iv) has specifically considered whether they are aware of any “material incident” that has not been publicly disclosed. The pre-clearance form defines “material incident” with specificity, including significant regulatory developments, material production issues such as contamination or quality control problems, whistleblower complaints, and significant developments in key contractual relationships. The Company also agreed to provide quarterly reports to the NYAG for three years covering all Rule 10b5-1 plans adopted, modified, or terminated by its directors and senior officers.
The civil action against the former CEO, filed on January 15, 2026 in the Supreme Court of the State of New York, New York County, remains pending; the NYAG seeks disgorgement of his full $10.1 million in proceeds, damages, and a permanent injunction.11
Key Takeaways for Public Companies
This action raises several important considerations for public companies and their boards, particularly with respect to the approval of Rule 10b5-1 trading plans. Public companies should consider whether their existing insider trading policies and Rule 10b5-1 approval processes are sufficient. In particular, companies should consider the following, and consult counsel as needed.
Potential Expansion of Corporate Liability
The NYAG’s decision to pursue the Company for approving an executive’s trading plan—and to extract a monetary settlement—represents a departure from typical enforcement patterns and expands potential corporate exposure when an employee engages in insider trading. Insider trading enforcement actions have historically been brought against individual actors rather than the companies that employ them because companies are typically viewed as the victims of the insider trading. The SEC and DOJ typically do not pursue issuers for insider trading based on employee trading activity.
In addition, this risk extends beyond companies headquartered in New York. The NYAG could assert jurisdiction over any person or corporation engaging or participating in fraudulent practices in the purchase or sale of securities within or from New York State, a standard broad enough to capture companies traded on a New York-based exchange or whose shares are bought and sold through New York-based advisers or investors, regardless of where the company itself is based.
Further, Rule 10b5-1 trading plans may not shield issuers from all risks. Such plans provide an affirmative defense to insider trading liability where trades are made pursuant to a plan adopted in good faith and at a time when the individual is not aware of MNPI. These plans are commonly used by corporate executives and are frequently recommended as a means of mitigating insider trading risk. As we discussed in a prior client alert, however, enforcement authorities have demonstrated an increased willingness to challenge the use of Rule 10b5-1 plans where they believe such plans were adopted while the executive possessed MNPI or were otherwise not entered into in good faith. In that alert, we highlighted the SEC and DOJ actions against the CEO of a public company who allegedly adopted 10b5-1 plans while aware of adverse developments affecting the Company’s largest customer relationship. The NYAG’s action builds on this trend, but goes further by asserting liability against the Company for approving the plan, thereby creating additional compliance considerations for issuers.
Heightened Expectations for Plan Approval Processes
This action may signal an expectation that companies undertake a more robust review of executive trading plans prior to approval. In particular, regulators may expect companies to go beyond reliance on written certifications and to consider whether the executive may possess MNPI based on recent board materials, management reports, or other undisclosed developments. Given the potential for retrospective scrutiny, companies should consider whether their approval processes are sufficiently documented to demonstrate a reasonable basis for concluding that the executive was not in possession of MNPI at the time of plan adoption.
While the NYAG alleged the Company clearly knew the MNPI at the time of plan approval, companies should be vigilant in less clear situations. Companies should implement robust procedures for reviewing and approving executive trading plans, which may include:
a) Requiring detailed certifications from executives that they are not in possession of MNPI at the time of plan adoption;
b) Conducting diligence beyond written certifications, including inquiries regarding recent significant operational activities, management and board presentations, and undisclosed developments that could constitute MNPI;
c) Where a company is experiencing material, nonpublic business developments — such as operational issues, regulatory challenges, or significant contractual developments — considering whether it is appropriate to delay the adoption or approval of trading plans or to implement additional safeguards, such as General Counsel and CFO approvals;
d) Consulting with legal counsel to assess potential MNPI risks based on the company’s current business circumstances; and
e) Documenting the review process and the basis for approving the plan.
Companies should review their policies governing Rule 10b5-1 plans to ensure compliance with applicable requirements, including the SEC’s 2022 amendments,12 and to emphasize that plans must be adopted in good faith and not as part of a scheme to evade insider trading prohibitions. Finally, companies should remind directors and executive officers that the obligation to act in good faith is not limited to the moment of plan adoption — it continues throughout the duration of the plan.
State Enforcement Filling a Potential Federal Gap
The fact that the SEC and DOJ reportedly reviewed this matter but declined to bring charges, followed by the NYAG's action, illustrates that state authorities may be willing to pursue cases that federal regulators do not — particularly given that state statutes such as the Martin Act impose a lower bar for liability, including potentially no requirement of scienter, and are less frequently litigated in the insider trading context. This development comes amid broader speculation that state enforcement may increase during periods of perceived federal regulatory restraint.
Companies should recognize that even where federal authorities decline to pursue enforcement, state attorneys general may assert claims under broad anti-fraud statutes. Companies may wish to consider state law implications — including potential exposure in jurisdictions where their shares are traded or their executives' trades are executed — as part of their insider trading compliance frameworks, and should monitor developments at the state level accordingly.
Increased Uncertainty
Historically, insider trading enforcement has been driven primarily by the SEC and DOJ, resulting in a relatively well-developed body of case law and enforcement norms. By contrast, state enforcement under broad anti-fraud statutes — such as New York’s Martin Act — has been less predictable and less constrained by established precedent. Public companies have developed a degree of predictability regarding the types of conduct that may give rise to insider trading liability under federal law. The potential expansion of enforcement by state authorities—operating under broader and less developed statutory frameworks—may reduce that predictability. As a result, companies may face increased uncertainty in evaluating whether the approval of a trading plan could later be subject to scrutiny, particularly in situations involving evolving or undisclosed business developments.
Conclusion
The NYAG’s action underscores that insider trading enforcement continues to evolve and that companies and executives may face potential exposure not only under federal securities laws, but also under state laws. As enforcement authorities potentially expand their focus to include corporate actions surrounding the approval of trading plans, public companies should reassess their policies and procedures to ensure they are appropriately calibrated to address this developing risk landscape.
1 Press Release, New York Attorney General, Attorney General James Sues Former CEO of Emergent BioSolutions for Insider Trading (Jan. 15, 2026), https://ag.ny.gov/press-release/2026/attorney-general-james-sues-former-ceo-emergent-biosolutions-insider-trading; People of the State of New York v. Robert Kramer, Index No. 450441/2026, Complaint (N.Y. Sup. Ct., Jan. 15, 2026) (“CEO Complaint”); Assurance of Discontinuance, In the Matter of Emergent BioSolutions, Inc., Attorney General of the State of New York (Jan. 15, 2026) (“Company AOD”).
2 See our prior client alert for a discussion of other actions relating to 10b5-1 plans.
3 In re Emergent BioSolutions, Inc., Securities Act Rel. No. 11371, Admin. Proc. File No. 3-22472 (Apr. 7, 2025).
4 See Beth Wang, NY Sues Ex-Emergent BioSolutions CEO for Insider Trading, Bloomberg Law (Jan. 15, 2026), https://news.bloomberglaw.com/litigation/ny-sues-ex-emergent-biosolutions-ceo-kramer-for-insider-trading (“The trading plans were reviewed by the US Justice Department and the Securities and Exchange Commission.”).
5 CEO Complaint, ¶¶ 20–21.
6 See Sheryl Gay Stolberg & Chris Hamby, How Emergent BioSolutions Put an “Extraordinary Burden” on the U.S.’s Troubled Stockpile, N.Y. Times, (July 6, 2021), https://www.nytimes.com/2021/03/06/us/emergent-biosolutions-anthrax-coronavirus.html; Sheryl Gay Stolberg, Emergent BioSolutions Halts Operations at Its Baltimore Plant, Where J.&J. Doses Were Ruined, at the F.D.A.’s Request, N.Y. Times (Apr. 19, 2021), https://www.nytimes.com/2021/04/19/us/emergent-johnson-covid-vaccine.html.
7 The Martin Act, N.Y. Gen. Bus. Law § 352 et seq.
8 People of the State of New York v. Robert Kramer, Index No. 450441/2026, Complaint (N.Y. Sup. Ct., Jan. 15, 2026).
9 Company AOD, ¶ 29.
10 See State v. Rachmani Corp., 71 N.Y.2d 718, 725 (1988) (holding that the Martin Act “was designed to defeat those who would use fraudulent or deceptive practices” without requiring proof of intent to defraud).
11 CEO Complaint, at 27-28.
12 The SEC’s 2022 amendments to Rule 10b5-1 made several significant changes, including: (i) imposing mandatory cooling-off periods before trading can commence; (ii) prohibiting overlapping plans; (iii) all persons others than issuers can have one trade plan per 12-month period; (iv) requiring officers and directors to certify at the time of plan adoption that they are not aware of MNPI; and (v) all persons must act in good faith throughout the duration of the plan. See our prior alert for more detail.
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