Publications

The revived scrutiny of Rule 10b5-1 trading plans that began late last year has now expanded to the trading activities of corporate board members and affiliated large investors. Some recent press coverage has asserted that directors’ and investors’ use of 10b5-1 trading plans is “exotic” or beyond the intended scope of the rule—despite the fact that Rule 10b5-1 does not limit its use to corporate executives. Indeed, Rule 10b5-1 has consistently been used by directors and institutional investors since its adoption over a decade ago.

Nevertheless, with regulators and prosecutors continuing to take interest, corporate directors, investment funds and other insiders should consider best practices, such as those discussed below and in our March 4 memo, in order to reduce the risk that scrutiny will result in liability or reputational damage.

Legal compliance is necessary, but as the topic of 10b5-1 plans appears to be growing more charged, optics also grow more significant. A recurring feature in the recent public discussion is a focus on whether insiders have superior trading outcomes to other investors. This reflects longstanding interest in whether markets are fair to ordinary investors without inside connections to companies. The press coverage illustrates that—fairly or not—there is a common tendency to judge fairness in hindsight, apart from compliance with settled law.