The Harvard Business Law Review recently published an article entitled “Insider Trading by Other Means” by an influential research group, which asserts that using the “J” (other) code in a Form 4 is highly correlated with dispositions based on material non-public information (i.e., insider trading).

The authors argue that “insiders conceal their suspicious trades by publicly reporting them (as they are required to do) in ways that confuse or discourage investigators,” such as using code J for “other” transactions. The authors call on the SEC and investigators to prioritize the review of J-coded transactions over ordinary sales transactions in Form 4 filings.

In light of the SEC’s recent focus on insider trading and data analytics, the agency may take note of this article and begin scrutinizing J-coded transactions more closely. Accordingly, companies should carefully review any Form 4 filings with code J transactions and ensure that the filings include the required explanatory footnotes about the transaction. 

Deficient filings are likely to raise red flags. See Insider Trading: Watch Your Form 4 Transaction Codes (theCorporateCounsel.net, August 2024) and There’s Something Fishy About Insiders’ ‘Other’ Trades (Bloomberg, August 2024, subscription required).

This article is part of a Fenwick “Securities Law Update” authored by David A. Bell, Ran Ben-Tzur, Amanda Rose, and Merritt Steele.