SEC probes possible abuse in exec trading plans
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is investigating if executives are illegally trading on insider information and using a preset trading plan to avoid suspicion, a senior agency official said on Thursday.
A recent Stanford University study showed that executives' stock trades under preset trading plans performed nearly 6 percent better than executives' trades that were not part of such a plan, SEC Enforcement Director Linda Thomsen said.
"It raises the possibility that these plans are being abused," she said during a panel discussion at the Corporate Counsel Institute's annual symposium.
In 2000, the SEC adopted a rule known as 10b5-1 that allows corporate executives to file a trading plan for future sales of their stock. The plans are intended to prevent suspicions that executives illicitly traded on material insider information.
The 10b5-1 rule is typically used by top executives to liquidate stock on a systematic basis at a prearranged market price. It provides what lawyers call a "safe harbor" against illegal insider trading.
"We're looking at this hard," Thomsen said. "If executives are in fact trading on inside information and are using a plan as a cover, they should not expect to use the safe harbor" as a legal protection.
Thomsen declined to elaborate further on the investigation.
The Stanford study, led by accounting professor Alan Jagolinzer, found evidence that executives with trading plans systematically sold shares after positive news and before negative news.
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