What are Directors and Officers Expected to do if they Discovery Adverse Material Nonpublic Information?
If upon learning of nonpublic adverse information directors and officers quickly disclose the information and sell the company stock held in the plans, the company’s stock price would undoubtedly drop significantly given the large number of company shares usually held in plan accounts. Such a dramatic collapse in the stock price would likely constitute an overreaction to the adverse information and thus unnecessarily penalize plan participants and other shareholders. In addition, if the directors and officers “quietly” begin divesting company stock held in plan accounts without publicly disclosing the adverse information, they would be trading while in possession of material nonpublic information and thus would likely violate the insider trading laws. Stated differently, the underlying premise of the ERISA tagalong class actions, if supported by courts, would place directors and officers in an impossible dilemma that could result in excessive and unnecessary losses to plan participants
