Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

The following is not meant to be legal advice.

The SEC promulgated Rule 10b5-1.  10b5-1 trading plans may afford protection to defendants in securities class action lawsuits.  In the typical allegations raised in a shareholder class action law suit, the shareholder plaintiffs accuse the defendant insiders of violating Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5. The allegations in these suits is that company insiders committed fraud on the market, such as through false disclosure or failure to make necessary disclosures, to support the price of a company’s stock.  One element that the shareholder plaintiffs must establish is that the defendant insiders acted with intent to commit fraud. The plaintiffs can point to sales of stock made by the insiders at allegedly artificial prices.  These are sales allegedly timed to personally enrich the defendant insiders.  If sales made by an insider were made pursuant to a pre-established 10b5-1 trading plan, the defendant insider may rebut the intent that a trade by an insider may otherwise imply.