Trading Plans

Prosecutors launched a criminal investigation into whether corporate directors misused government-sanctioned trading plans to sell company shares for investment funds they run. Federal prosecutors are investigating potential misuse of 10b5-1 plans by corporate directors, allowing them to sell company shares even when privy to nonpublic information about their firms. The probe was triggered by a Wall Street Journal article detailing trading activities at several companiues. Read the full story here.

Corporate board members are increasingly using a type of opaque trading plan that was originally intended primarily for executives. The use of government-sanctioned 10b5-1 trading plans, designed to avoid insider trading suspicion by scheduling trades in advance, has surged by 55% among nonexecutive directors since 2008. Some directors use these plans for rapid large-scale stock sales. Critics argue that these trading plans may sometimes be abused, especially by board members who also run investment funds, potentially leading to the appearance of impropriety....

Regulators will step up their focus on trading by corporate executives this year, according to a large international law firm that is pressing corporate boards to increase oversight of executive-trading plans. Regulators will increase scrutiny on trading by corporate executives, pushing corporate boards to enhance oversight of executive-trading plans and ensure compliance beyond just the letter of the law. Concerns arise from loopholes in 10b5-1 plans, which allow executives to trade company shares even with private company knowledge, given the plans were established without such knowledge; there’s currently minimal oversight and public disclosure requirements for these plans....

A medical-supplies company made a $43 million repurchase of its own shares last year, buoying the stock before bad news hit, even as four top managers were selling company shares. A medical-supplies firm repurchased a significant amount of its own shares, boosting the stock’s value, while four top executives sold their company shares. A month later, the stock experienced a 9% drop following the announcement of poor earnings. Some employees within the firm expressed concerns about the trading activities....

The SEC is facing mounting pressure to tighten its rules, following a Wall Street Journal investigation that found profitable and well-timed trades by more than 1,400 executives. In 2007, a senior securities regulator cautioned about the potential misuse of preset plans by executives to trade their companies’ stock based on inside information. Following a Wall Street Journal investigation revealing well-timed trades by over 1,400 executives, pressure has mounted on the SEC to tighten its rules....

Ten Big Lots Inc. executives sold a total of more than $23 million in the discount retailer’s stock in March before the company announced news that sank its stock, according to a Wall Street Journal analysis. Read the full story here.

Federal prosecutors and securities regulators are taking a deeper look into how executives use prearranged trading plans to buy and sell shares of their company stock. Read the full story here.

Some investors are calling for better disclosure of stock transactions by corporate executives amid concern that some may be trading based on private information about their companies. Read the full story here.

An investigation of insider trading by corporate executives found many make profitable trades prior to news announcements. Our analysis found that many executives made trades yielding considerable profits just before significant company news announcements. Of 20,237 executives we looked at, 1,418 experienced an average gain of 10% in their trades one week before significant news releases. This rate of profit was notably higher than that of executives who faced negative stock movements....