Devoted to Corporate Attorneys, Corporate Lawyers, and Corporate Counsel

The following is not meant to be legal advice.

Stanford University School of Business Professor Alan Jagolinzer raises issues on the legality of trades being made under certain 10b5-1 trading plans.  Perhaps, public companies should review their 10b5-1 trading plans.

Coincidentally, Linda Chatman Thomsen, the head of enforcement at the Securities and Exchange Commission (SEC), noted in a speech on March 8, 2007 that the SEC is looking into 10b5-1 trading plans.

Professor Jagolinzer’s research examines the return on trades made through 10b5-1 trading plans. The data suggests that the timing of trades under 10b5-1 plans is not always left to chance. Insiders participating in 10b5-1 plans beat the market by 6% over six months, while those who did not participate in such plans beat the market only by 1.9%.  These statistical results are surprising if 10b5-1 plans are meant to be employed in a way that does not take advantage of material insider information.  Some plans may be implemented at a time when insiders are arguably aware that good news may be forthcoming before the date of the first scheduled sale.