Publications

A recent decision issued by the United States District Court for the District of Massachusetts, Harrington v. Tetraphase Pharmaceuticals, Inc., highlights the value of established trading plans in defending against securities fraud allegations. These trading plans, which are established pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, are not absolute defenses, but do offer corporate directors and officers (“insiders”) a greater level of protection in the event they purchase or sell company shares during the putative class period of a subsequent securities litigation. There are, however, several factors to consider in deciding whether a 10b5-1 trading plan is appropriate for a particular insider at a particular time and, if so, in determining how to structure such a plan. In addition to discussing Tetraphase Pharmaceuticals and other case law regarding the role of 10b5-1 plans in refuting securities fraud allegations, this memo briefly outlines the requirements of 10b5-1 plans and provides practical reminders to corporations and their counsel on crafting plans that will likely be most successful in shielding corporate executives from liability.