Insider Trading and 10b5-1 Plans
Question: Does our company need to adjust its insider trading policy and expand it to cover 10b5-1 Plans?
Answer: The U.S. Securities and Exchange Commission ("SEC") and Department of Justice’s ("DOJ") have an expanded view of insider trading which also applies to 10b5-1 plans. Recently the DOJ has prosecuted and a federal jury in California convicted an individual for securities fraud and insider trading based on two 10b5-1 plans he entered into to sell securities. [1] This was the first DOJ’s insider trading prosecution based exclusively on the use of a trading plan and DOJ plans to ensure that corporate executives do not trade on inside information, using trading plans they established in bad faith.
In general, rule 10b5-1 plans provide an affirmative defense for corporate insiders buying and selling company stock as long as their trading plans are adopted in good faith and before the insider becomes aware of material nonpublic information. It is recommended that your company’s legal counsel ensure the following:
o Insiders should only enter into trading plans in good faith. As such, insiders entering into 10b5-1 plans must attest that, at the time of the creation of the plan, they are not aware of material nonpublic information about the issuer or its securities and that they are adopting the plan in good faith and not as part of a scheme to evade prohibitions of Rule 10b5.
o In addition, all those adopting a 10b5-1 plan must act in good faith with respect to the plan for the duration of the plan and should attest to that prior to the execution of a trade.
o Prior to entering into 10b5-1 plans, legal counsel should review the plan to confirm compliance with all the conditions of Rule 10b5-1, as amended in 2022, including the required cooling-off period prior to the start of trading.
[1] Chairman of Publicity Traded Health Care Company Convicted of Insider Trading:
https://www.justice.gov/opa/pr/chairman-publicly-traded-health-care-company-convicted-insider-trading
*The contents of this message, current at the date of publication, are for reference and general informational purposes only and do not constitute legal advice. You should contact your attorney to obtain advice with respect to any particular legal matter. You should not act or refrain from acting on the basis of information in this publication without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
Question: Does our company need to adjust its insider trading policy and expand it to cover 10b5-1 Plans?
Answer: The U.S. Securities and Exchange Commission ("SEC") and Department of Justice’s ("DOJ") have an expanded view of insider trading which also applies to 10b5-1 plans. Recently the DOJ has prosecuted and a federal jury in California convicted an individual for securities fraud and insider trading based on two 10b5-1 plans he entered into to sell securities. [1] This was the first DOJ’s insider trading prosecution based exclusively on the use of a trading plan and DOJ plans to ensure that corporate executives do not trade on inside information, using trading plans they established in bad faith.
In general, rule 10b5-1 plans provide an affirmative defense for corporate insiders buying and selling company stock as long as their trading plans are adopted in good faith and before the insider becomes aware of material nonpublic information. It is recommended that your company’s legal counsel ensure the following:
o Insiders should only enter into trading plans in good faith. As such, insiders entering into 10b5-1 plans must attest that, at the time of the creation of the plan, they are not aware of material nonpublic information about the issuer or its securities and that they are adopting the plan in good faith and not as part of a scheme to evade prohibitions of Rule 10b5.
o In addition, all those adopting a 10b5-1 plan must act in good faith with respect to the plan for the duration of the plan and should attest to that prior to the execution of a trade.
o Prior to entering into 10b5-1 plans, legal counsel should review the plan to confirm compliance with all the conditions of Rule 10b5-1, as amended in 2022, including the required cooling-off period prior to the start of trading.
[1] Chairman of Publicity Traded Health Care Company Convicted of Insider Trading:
https://www.justice.gov/opa/pr/chairman-publicly-traded-health-care-company-convicted-insider-trading
*The contents of this message, current at the date of publication, are for reference and general informational purposes only and do not constitute legal advice. You should contact your attorney to obtain advice with respect to any particular legal matter. You should not act or refrain from acting on the basis of information in this publication without first seeking legal advice from counsel in the relevant jurisdiction. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
