November 7, 2022

Rule 10b5-1 Plans: SEC & DOJ Hunting for Suspicious Trades

Earlier this fall, John blogged that the Division of Enforcement had gotten something it has coveted for quite some time – an insider trading case involving senior executives allegedly misusing a Rule 10b5-1 plan. Bloomberg reported last week that the SEC is looking to add to that tally, using data analytics. Here’s an excerpt:

The Justice Department and Securities and Exchange Commission are using computer algorithms in a sweeping examination of preplanned equity sales by C-suite officials, according to people familiar with the matter. Investigators are concerned that some people are manipulating the stock-sale programs, which are intended to shield executives from misconduct allegations by letting them schedule transactions in advance and on preset dates.

The article says that the agencies are preparing to bring “multiple cases,” following information requests that were made earlier this year, and that at least one company has disclosed that it received subpoenas about a former executive’s trading activity under a Rule 10b5-1 plan.

If the SEC successfully uncovers violations, it may use those findings to refine & support final rules that restrict the use of prearranged trading plans, as proposed last year. The securities law community has expressed concern that, as proposed, the rules would be a departure from insider trading law and should be targeted more closely to address demonstrable abuses. If the investigations come up empty, the Commission may still adopt the rules using data it has already relied on – and may also keep looking for violations.

Liz Dunshee