The Justice Department and the Securities and Exchange Commission are hunting for a new type of insider-trading case

3/4/2023

The Justice Department and the Securities and Exchange Commission are hunting for a new type of insider-trading case, specifically prearranged trading plans, per WSJ.

The SEC first permitted such plans through a regulation passed in 2000 and known as Rule 10b5-1.

The 10b5-1 regulation had loopholes, such as the ability of executives to create plans and immediately start selling, including before earnings announcements, according to academic research.

SEC Chair Gary Gensler has called the measure “antiquated, exposing real gaps in our insider-trading enforcement regime.”

The inquiries “are difficult because there are a lot of thorny privilege issues and other issues that make these investigations more difficult than your typical investigation,” SEC Enforcement Director Gurbir Grewal said.

The Wall Street Journal in June 2022 published an investigation into stock sales by insiders who used 10b5-1 plans, showing that those who sold within 60 days of adopting such a plan often had good timing, on average selling before a downturn in the company’s stock price.

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