What Do You Do If You Accidentally Sold Shares During Blackout Period?LAST UPDATED: August 6, 2023 | By Conrad Golly
In the fast-paced world of the stock market, where stock prices fluctuate with every passing second, making the right investment decisions is critical.
But what happens when you Accidentally Sold Shares During Blackout Period, a time when insiders are prohibited from trading?
Not only can it disrupt your investment strategy, but it can also lead to potential legal issues, reputational damage, and even financial penalties. That’s why it’s critical to be aware of blackout periods and understand the restrictions they impose.
You can seek investment advice from professionals who can guide you through the intricacies of trading during blackout periods. Stick around to learn more about what you can do in situations of accidental trades.
Defining a Blackout Period
A blackout period is a time frame when employees or insiders of a publicly traded company legally can’t buy or sell company shares.
The period usually happens when a company is undergoing sensitive operations or at the end of any quarter or fiscal year.
Depending on the company’s enforcement, it can extend for weeks or even months at a time. The law doesn’t put a limit on a blackout period’s duration.
It’s a crucial mechanism designed to prevent insider trading and ensure a fair and transparent market for all investors.
The Importance of Blackout Periods
Legal enforcers established this period to prevent individuals with access to non-public insider knowledge from taking advantage of it and making unfair trades.
By restricting trading activities, blackout periods safeguard against potential conflicts of interest and maintain a level playing field among investors.
The Enforcement of Blackout Periods
A company’s compliance and legal departments are responsible for enforcing the blackout periods. The team can oversee trading activities and audits to ensure employee compliance. They may use advanced software systems to track and review trading comings and goings.
During a blackout period, the department typically requires employees and insiders to obtain clearance before engaging in any company securities transaction.
This pre-clearance process ensures that individuals are aware of their obligations and comply with the policies and laws against insider trading.
The Securities and Exchange Commission (SEC) mandates that companies establish blackout periods and inform employees and insiders of their restrictions.
The governing body oversees securities markets in the United States. It establishes federal securities laws that public companies must adhere to when implementing blackout periods. These regulations aim to protect shareholders’ interests and maintain market integrity.
If the SEC identifies any violations or irregularities during blackout periods, it has the authority to investigate and take enforcement actions.
It may involve imposing fines, sanctions, or legal proceedings against individuals or companies found to have violated illegal insider trading regulations during blackout periods.
What Happens When You Accidentally Sold Shares During Blackout Period?
Picture this: You’re an employee or a company insider with some common stock or company stock, and you accidentally sell those shares during a blackout period. You may have just landed yourself in hot water.
From a legal angle, you’ll be committing insider trading violations, despite not meaning to. You could face legal repercussions, including fines, civil penalties, and even criminal charges.
The fines can accumulate to up to thrice the amount of profit earned from insider trading or loss avoided. That said, accidental trades can potentially implicate insider trading accusations.
Keep in mind that insider trading is one of those crimes that you can rarely commit by accident. In turn, you’ll need to consider the SEC’s perspective and fiduciary duty.
Selling shares in blackout periods can raise concerns about the use of non-public information and potentially trigger insider trading allegations, violating company policy. Such allegations can directly affect the company’s stock and investor confidence.
Investors rely on the integrity and transparency of the financial markets. When insider trading allegations surface, it creates doubts about the fairness of trading and the information available to investors. It can lead to a decline in investor confidence and negatively impact the company’s stock value.
In addition, the news of insider trading allegations can spread quickly. It can attract attention from market participants, regulatory authorities, and the media. This added scrutiny can further erode investor confidence and potentially result in increased selling pressure on the company’s stock.
The allegations can trigger long-term implications, affecting the company’s ability to attract new investors, raise capital, and maintain positive relationships with stakeholders.
Personal and Professional Consequences
Accidentally selling shares during a blackout period can have significant personal and professional repercussions.
From a personal standpoint, accidentally selling shares during a blackout period can lead to a damaged reputation.
Trust is a valuable asset, and being associated with insider trading can have lasting negative effects on your personal and professional relationships. Colleagues, investors, and the public may question your integrity and judgment.
Steps to Take After Accidentally Selling Shares During Blackout Period
Before you start to panic about accidentally selling shares during a blackout period, you’ll want to go through a few steps to ensure your security.
Notify Compliance Department
Your first course of action should involve complete transparency with the company. As soon as you realize the accidental trade, inform the appropriate internal parties responsible for overseeing compliance. They can guide you on the next steps to take.
If necessary, inform your immediate supervisor or manager about the situation. Clear and timely communication can ensure that everyone involved is aware of the accidental trade and can work towards a resolution.
Cooperate with Internal Investigations
The company may conduct internal investigations to gather relevant information and assess the circumstances surrounding the accidental trade. You must cooperate fully and provide any requested documentation or details.
Seek Legal Advice
The trade might trigger legal ramifications. For this reason, you need to seek legal consultation to help you navigate through the situation. They’ll inform you of the potential consequences you’ll face and advise you accordingly.
Prevention Methods for Accidentally Selling Shares During Blackout Period
By implementing these prevention and mitigation strategies, companies can significantly reduce the likelihood of accidental trades during blackout periods.
Stay Up to Date on Blackout Periods
Remain informed about the company’s blackout periods and trading restrictions.
Be aware of important dates and ensure you and your company employees fully understand when the trading window opens and closes.
Establish Clear Internal Communication Channels
Foster transparent communication within the organization regarding blackout periods.
Ensure employees are aware of the restrictions and provide a reliable channel for them to seek guidance or report potential accidental trades.
Reinforce Pre-Trade Compliance Checks
Develop robust pre-trade compliance procedures to help prevent accidental transactions. It can include pre-clearance processes.
During them, employees obtain approval from the compliance department before engaging in any securities transactions.
Spread Awareness of Insider Trading and Blackout Period Regulations
Conduct regular training sessions to educate employees about the importance of blackout periods and the laws against insider trading.
Promote awareness and ensure everyone understands their responsibilities and the potential consequences of violating the regulations.
Real-Life Case Study of Blackout Period Selling
Between the years 2016 and 2018, Viky Bohra, an Amazon employee’s spouse, gathered inside information from his wife, who worked in the finance department.
Bohra made trades in the Amazon stock during blackout periods. Upon FBI investigation, he earned a total profit of a whopping $1,428,264. The 37-year-old residing in Seattle, Washington was criminally charged in the U.S. District Court for 26 months of prison time.
According to U.S. Attorney Tessa M. Gorman, “This defendant and his wife were earning hundreds of thousands of dollars in salary and bonuses from their jobs in tech – but he was not content with that – greedily scheming to illegally profit by trading Amazon stock.”
Despite multiple warnings of insider trading at Bohra’s wife’s workplace, the couple still committed securities fraud.
By September 2020, the SEC charged Bohra with a civil insider case. The family had to pay over $2,652,899 in penalties, interest, and disgorgement. Bohra’s wife was not prosecuted, but terminated by Amazon.
What Is Required For A Blackout Notice?
According to federal regulation, companies must provide a blackout period notice for employees at least 30 days before anyone can sell or buy shares.
When Can Insiders Sell Stock After Earnings?
As per the insider trading policy, insiders can sell stock during the Window Period. The time frame opens on the second day after the company publicly announces its quarter or annual earnings.
Accidents happen, and while it’s vital to take the appropriate steps to address them, it’s equally crucial to learn from the experience. Additionally, you need to implement necessary changes to avoid similar situations in the future.
By staying informed, following internal policies, and considering market conditions, you can minimize the likelihood of accidental trades during blackout periods.
In the fast-paced world of the stock market, every decision counts. So, be mindful of blackout periods and seek expert guidance when needed.