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US Senators Want The SEC To Tighten Regulations Against Insider Trading

Okabe & Haushalter Mar 15, 2021 White Collar Crimes

Recently, US Senators Elizabeth Warren, Sherrod Brown, and Chris Van Hollen sent a letter to the head of the Securities and Exchange Commission (SEC) asking that the regulatory agency review its policy and procedures regarding company insiders who trade stock in their companies pursuant to 10b5-1 plans. The senators want the SEC to implement further regulations around the use of 10b5-1 plans to prevent executives from unfairly profiting using information not available to outside investors.

At Okabe & Haushalter, our Los Angeles insider trading attorneys understand how important it is that company executives are able to trade their company stock without violating Federal securities laws and we will be monitoring what the SEC decides to do.

What are 10b5-1 Plans?

In 2000, the SEC authorized 10b5-1 plans. The 10b5-1 plans were the SEC’s solution for company executives who want to sell their stock and not run afoul of insider trading laws.

The plans are to contain predetermined dates in the future when company executives are allowed to trade a predetermined number of their shares independent of any specific information about the company.

While 10b5-1 plans are designed to prevent insider trading, the senators included evidence that insiders are still able to use information not available to the general public in order to increase their profits far beyond what the ordinary investor is able to achieve.

In particular, the senators point to the fact that company executives – particularly in the healthcare industry – are selling their stock on the heels of the release of positive information about the company.  Although 10b5-1 plans may initially specify sell dates months away from company announcements, those dates can be changed at the last minute allowing executives to personally benefit from price increases brought about by positive reports.

How to Avoid Insider Trading with a 10b5-1 Plan

In order to set up a 10b5-1 plan that complies with SEC requirements, a company insider must not execute the plan when he or she is aware of any material non-public information (MNPI). MNPI is information that is not public and that could influence the stock price. A valid 10b5-1 plan must

  • Specify pricing, quantity, and dates to purchase or sell stock
  • Specify the method used to determine pricing, quantity, and dates
  • Use an independent broker who has the exclusive right to determine when to make a trade (while not possessing any MNPI)

Attempting to make it more difficult for the 10b5-1 plan requirements to be circumvented, the senators are urging the SEC to provide greater oversight with stricter enforcement and increased public disclosure.

Changes to 10b5-1 Plan Requirements

Whatever future changes might be made that affect 10b5-1 plans, at Okabe & Haushalter, our Los Angeles insider trading lawyers will make sure they know what those changes are and how they impact you as an executive trading company stock. If you have concerns about trading your company stock or possibly becoming the subject of an SEC investigation for insider trading you can contact us by clicking here today for a free consultation or calling 310-430-7799.