Shadow Trading Verdict Is Red Flag for Private, Public Companies

Most private companies don’t have policies addressing insider trading since purchases and sales of company stock is more cumbersome than trading on the open market (and, in many instances, restricted until a public offering or liquidation event). However, an individual need not be an employee of a public company to engage in shadow trading since the concept applies to trading in another company’s stock.

As Panuwat’s case illustrates, for life science companies there are often reasons to believe that information about one company, public or private, might have implications for another public company’s stock. For instance, if a private company and public company are both developing drugs that target the same biological pathway, and the private company obtains positive clinical data, it might be possible to infer that the public company program will also succeed.

To prevent employees from using non-public information for their own benefit, a private company may find it prudent to assess its current employee confidentiality agreements or other policies to address shadow trading.

Source: Shadow Trading Verdict Is Red Flag for Private, Public Companies