The current system is one big loophole. You can schedule the sale so the date is fixed, but executives have almost complete control over corporate operations and the release of news. [Emphasis added below]
Securities regulators are rethinking rules on popular plans that let corporate executives sell stock without violating insider-trading provisions. The plans—known as 10b5-1 plans—allow executives to create schedules for buying and selling shares in the future.
In theory, a predetermined sale, even if it comes at a fortuitous time, wouldn’t be based on inside information. But years of research has shown that the reality is more complicated: Executives might establish a plan to sell shares that very day. Executives could set up a raft of plans to sell on different days, then cancel most of them. They can modify plans without disclosing what they are doing.
Securities and Exchange Commission Chairman Gary Gensler has expressed skepticism about the plans and in June asked the commission’s staff to recommend changes that would curb abuses.
Lawmakers called for changes last year after pharmaceutical executives developing Covid-19 vaccines sold $500 million worth of shares; many of the sales came under 10b5-1 plans that were modified after vaccine trials began. The companies say the trades followed rules for 10b5-1 plans, and no one has been accused of wrongdoing.
The plans are wildly popular: They accounted for 61% of all insider trades during 2020, up from 30% in 2004, according to data from InsiderScore, a research service tracking executive-trading data.
“The original intent was to create a safe harbor so people who want to follow the rules have a clear way to do that, but there may be a need to further strengthen those rules,” said Priya Huskins, partner and senior vice president at insurance brokerage Woodruff Sawyer & Co. who advises clients on corporate-governance issues including 10b5-1 plans.Executive Stock Sales Are Under Scrutiny. Here’s What Regulators Are Interested In. – WSJ