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Insider Trading Plans in Spotlight Again
3 December 2012
A recent front page article in the Wall Street Journal noted that many executives have done suspiciously well buying and selling their companies’ stocks under so-called Rule 10b5-1 trading plans. The Journal article, and the recent focus on insider trading matters generally, suggests that Rule 10b5-1 trading plans – which offer an affirmative defense to insider trading – may be ripe for increased scrutiny by regulators, prosecutors and shareholders alike.
Rule 10b5-1 prohibits insiders from possessing material non-public information when they enter into a trading plan, but the rule does not prevent insiders from cancelling an established plan at any time – including while in possession of such information. Under certain circumstances, however, the SEC may view a plan cancellation as calling into question whether the plan was entered into in good faith and not as part of a plan or scheme to evade the insider trading rules.
The Journal article may prompt regulators to take a closer look at practices relating to Rule 10b5-1 plans. With that in mind, now may be a good time to review Rule 10b5-1 plans to ensure they are designed and executed to protect against claims of impropriety.
Jonathan R. Tuttle
Matthew E. Kaplan
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