NYAG Suit Against Former CEO for Insider Trading Under Martin Act Signals Greater State Securities Enforcement Ahead

Key Points

• The NYAG’s decision to bring insider trading charges in People v. Kramer follows an uptick in white collar enforcement by state attorneys general at a time when such enforcement by federal agencies has trended downwards.  
• Increased activity by state regulators may raise novel legal issues regarding the scope of blue sky laws such as the Martin Act with respect to insider trading and other forms of conduct that have traditionally been governed by regulations interpreted by the federal courts and the SEC.
• This trend could have significant implications for corporations, their executives and institutional investors because blue sky laws differ from state to state and are often broader than their federal counterparts.
• The NYAG’s insider trading charges also embrace the theme of scrutinizing executive Rule 10b5-1 plans, which aligns with DOJ and SEC cases brought under the Biden Administration.

Background

On January 15, 2026, the New York State Attorney General (NYAG) filed a civil suit against the former CEO of Emergent BioSolutions Inc. (Emergent), Robert G. Kramer, alleging that his sales of company shares pursuant to a Rule 10b5-1 plan while in possession of material nonpublic information constituted insider trading under the Martin Act.

In the summer of 2020, Emergent signed a $261 million contract to manufacture AstraZeneca’s COVID-19 vaccine. Disclosure of the deal prompted Emergent’s stock price to climb from a low of $68.11 on June 11, 2020, to a high of $134.46 on August 5, 2020. In September 2020, Emergent began noticing contamination in its production of the vaccine, including elevated levels of bacteria, and at the start of October, the company commenced an investigation into contaminated early batches. On October 6, 2020, Kramer allegedly received a PowerPoint presentation, including slides discussing “aborted, contaminated batches” of the vaccine.

The complaint alleges that by mid-October 2020, Kramer had started discussions with his investment adviser to draft a Rule 10b5-1 trading plan to sell his Emergent stock.¹ The Rule 10b5-1 plan had a 60-day ”cooling-off” period before Kramer could exercise his options and sell the stock. Emergent’s in-house counsel reviewed the trading plan, and it became effective on November 13, 2020. In January 2021, following the expiry of the cooling-off period, Kramer began exercising his stock options and selling the shares pursuant to the plan. Total proceeds from his sales of Emergent stock were $10.1 million. Following Kramer’s stock sales, Emergent’s vaccine production setbacks came to light through disclosures and media reports, and Emergent’s stock price steadily declined.

The NYAG’s Insider Trading Charges Break From the SEC’s Approach

The NYAG’s lawsuit against Kramer was filed the same day that NYAG announced a $900,000 settlement with Emergent based on the company’s approval of Kramer’s Rule 10b5-1 trading plan while he allegedly possessed material nonpublic information in violation of the Martin Act.

The NYAG action under the Martin Act, which has a six-year statute of limitations, came several months after the U.S. Securities and Exchange Commission (SEC) instituted settled proceedings against Emergent for making materially misleading public statements touting Emergent’s ability and readiness to manufacture COVID-19 vaccine doses at its facility in Maryland. Notably, neither the SEC nor the U.S. Department of Justice (DOJ) have filed insider trading actions against Kramer. The NYAG’s decision to pursue insider trading charges under these circumstances is the latest example of state attorneys general seeking to fill a perceived void left by the pullback in federal enforcement activity.² Unlike Emergent, Kramer has refused to settle, and the case against him is currently pending in New York state court.

Insider Trading Under the Martin Act

While the NYAG’s complaint alleges that Kramer was aware of nonpublic information regarding Emergent’s vaccine contamination issues, it also acknowledges that his trades were executed pursuant to a Rule 10b5-1 plan that was approved by counsel. As a result, Kramer’s state of mind is likely to be a key issue if this case proceeds to trial. This could tee up novel legal issues under the Martin Act, which could have significant implications for companies, executives and investors doing business in New York.

For decades, most insider trading cases have been brought under the antifraud provisions of the federal securities laws, which require proof of scienter.³ For civil violations, this typically requires evidence of, at a minimum, reckless misconduct. Unlike the antifraud provisions of the federal securities laws, the Martin Act has been construed to prohibit material misrepresentations or omissions without any requirement of wrongful intent. However, this legal formulation has not been tested in the specific context of insider trading. As discussed below, there is good reason to believe that scienter is an essential element in any insider trading prosecution, even under the Martin Act.

The case law interpreting insider trading under the Martin Act is sparse and draws heavily on federal precedent, which has developed over decades and uniformly holds that scienter is required. New York courts have also recognized that, like under federal law, Martin Act insider trading claims cannot proceed in the absence of a breach of a duty.⁴ While there is little precedent on the scope of this duty under New York law, courts in other jurisdictions have held that there can be no breach without proof of scienter. In In re Oracle Corp. Derivative Litigation, the Delaware Court of Chancery explicitly rejected a strict liability standard for state law insider trading breach of fiduciary claims.⁵ In a thorough and well-reasoned opinion, the court observed that such a rule would subject corporate executives to an unpredictable enforcement regime where good faith materiality determinations could be too easily second-guessed using hindsight bias. Under the Oracle court’s reasoning, unless the defendant’s trades were motivated by a desire to profit on material nonpublic information (i.e., he or she acted with scienter), there would be no duty breach and therefore no insider trading, even under the Martin Act.

Insider Trading in the Context of Rule 10b5-1 Plans

Establishing scienter in a case where the alleged insider trades occurred pursuant to a preexisting trading plan can be challenging, particularly where the plan was put in place months earlier. Perhaps for this reason, enforcement actions involving Rule 10b5-1 plans are rare. In 2024, the DOJ succeeded in prosecuting its first ever criminal insider trading case, United States v. Peizer, based solely on trades placed pursuant to a Rule 10b5-1 trading plan that was put in place while the defendant possessed material nonpublic information. In that case, the former CEO of Ontrak, Inc., Terren Peizer, was convicted at trial and sentenced to 42 months in prison. In January 2026, while the case was on appeal, President Trump pardoned Peizer.

Peizer adopted his 10b5-1 plan without a cooling-off period against advice he received from financial advisors. These facts stand in contrast to the NYAG’s action against Kramer, which concedes that he traded pursuant to a plan that had a 60-day cooling-off period and was approved by company counsel. The NYAG nonetheless appears to be picking up on the theme of attacking Rule 10b5-1 plans based on allegations that a plan was put in place while the beneficiary was in possession of material nonpublic information.⁶ 

Takeaways

• People v. Kramer may clarify the mens rea requirement for insider trading under New York’s blue sky law. New York remains among the world’s preeminent financial centers and home to some of the world’s most prominent securities exchanges. The potential for broad insider trading liability under the Martin Act could have significant implications for public companies, their executives and institutional investors.
• As a general matter, following state enforcement patterns has become increasingly important given the significant shift in federal regulatory priorities under the current administration. Businesses should keep abreast of developing areas where state attorneys general are stepping up activity, especially in a coordinated fashion, which could broaden the impact of such initiatives.
• Corporations and their executives should ensure that Rule 10b5-1 plans are carefully vetted before they are approved. This should include an assessment of any nonpublic information possessed by the insider at the time the trading plan is adopted and a close review of all technical requirements imposed by Rule 10b5-1, including appropriate cooling-off periods.

Akin’s white collar defense & government investigations and state attorneys general practices have deep experience handling investigations and litigations opposite the NYAG and other state attorneys general. This includes insider trading matters involving the issues discussed in this alert where we have achieved favorable outcomes for clients. Should a company of its executives be faced with such a matter, our team is well positioned to assist.

^{1 Rule 10b5-1(c) provides an affirmative defense to insider trading where the insider demonstrates that his trades were executed pursuant to a plan that was entered into, in good faith, before he became aware of material nonpublic information. See C.F.R. § 240.10b5-1(c). Rule 10b5-1 also contains several other specific conditions that the plan must satisfy for the affirmative defense to apply.}

^{2 Examples include recent NYAG and Oregon Attorney General actions in the digital assets space and a legal advisory issued by the California Attorney General warning businesses that FCPA bribery cases are actionable under California’s Competition Law. See Assurance of Discontinuance, In re Galaxy Digital Holdings, et al., Assurance No. 25-011 (Mar. 24, 2025), https://ag.ny.gov/sites/default/files/settlements-agreements/galaxy-digital-holding-ltd-et-al-assurance-of-discontinuance-2025.pdf; Press Release, Oregon Department of Justice, Oregon Attorney General Sues Coinbase for Promoting and Selling High Risk Investments (April 18, 2025), https://www.doj.state.or.us/media-home/news-media-releases/oregon-attorney-general-rayfield-sues-coinbase-for-promoting-and-selling-high-risk-investments/; Press Release, California Office of the Attorney General, Attorney General Bonta Alerts Businesses: It remains Illegal to Bribe Foreign-Government Officials (April 2, 2025), https://oag.ca.gov/news/press-releases/attorney-general-bonta-alerts-businesses-it-remains-illegal-bribe-foreign.}

^{3 Securities Exchange Act of 1934, §10(b), 15 U.S.C. §78j(b); 17 C.F.R. § 240.10b-5.}

^{4 See People v. Napolitano, 282 A.D.2d 49, 54-56 (1st Dep’t 2001).}

^{5 867 A.2d 904, 930-34 (Del. Ch. 2004), aff’d, 872 A.2d 960 (Del. 2005). Shareholder derivative claims for breaches of fiduciary duty based on allegations of insider trading, commonly referred to as Brophy claims, have also been recognized by the New York courts. See Diamond v. Oreamuno, 24 N.Y.2d 494, 500-01 (1969) (citing Brophy v. Cities Service Co., 70 A.2d 5 (Del. Ch. 1949)).}

^{6 See 17 C.F.R. §§ 240.10b5-1(c)(i)(A) (noting that the Rule 10b5-1 affirmative defense applies only where the person making the purchase or sale demonstrates that “[b]efore becoming aware of the information,” the person had entered into a binding contract to purchase or sell the security, instructed another person to purchase or sell the security for the instructing person’s account or adopted a written plan for trading securities).}