Rule 10b5-1 plans

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sec sealThe SEC promulgated Rule 10b5-1 nearly 16 years ago to allow executives (whose wealth often is entirely locked up in company shares) to trade in their company’s stock without incurring possible liability under the securities laws. The Rule provides an affirmative defense against allegations of improper trading. In many cases defendants have  relied on the existence of a Rule 10b5-1 trading plan in order to have the securities claims against them dismissed (for example,  here and here). However, the Rule has also been subject to criticism, and some have questioned whether corporate executives are abusing their plans in order to shield questionable trading.

A recent academic study corroborates the view that the plans “are being abused to hide more informed insider trading.” The study, by Gothenburg University Professor Taylan Mavruk and  University of Michigan Business School Professor H. Nejat Seyhun and entitled “Do SEC’s 10b5-1 Safe Harbor Rules Need to Be Rewritten?” (here) concludes that “safe harbor plans are being abused to hide profitable trades made while in possession of material non-public information.” The authors suggest a number of revisions to the Rule in order to “prevent further abuse.” The authors summarized their findings in a short June 2, 2016 post on the CLS Blue Sky Blog (here).
Continue Reading Does Rule 10b5-1 Need Revision to Prevent Improper Insider Trades?

Clabby_Jack
Jack Clabby
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Avi Kaufman

One of the recurring issues with which federal district courts wrestle is the right way to assess securities complaint allegations based on confidential issues. Another recurring issue has to do with the assessment of trading in company securities by corporate insiders pursuant to Rule 10b5-1 trading plans. A recent decision by Second Circuit addressed both of these issues. The Second Circuit’s opinion in Employees’ Retirement System of Government of the V.I. v. Blanford, Case No. 14-cv-199 (2d Cir. July 24, 2015), can be found here.

 

In the following guest post, John E. Clabby and Avi R. Kaufman of the Carlton Fields Jorden Burt law firm review the Second Circuit’s opinion and in particular consider the appellate courts consideration of the confidential witness and Rule 10b5-1 trading plan issues. The authors’ bios appear at the end of the post.

 

I would like to thanks Jack and Avi for their willingness to publish their article on my site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Jack and Avi’s guest post.

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Late last week, the U.S. Court of Appeals for the Second Circuit reversed the dismissal of a shareholder class action against the makers of Keurig coffeemakers and their ubiquitous “K-Cups.” In so doing, the Second Circuit further described the standard for stating claims for securities fraud based on confidential witnesses and in the face of a 10b5-1 trading plan.
Continue Reading Guest Post: Second Circuit Revives Securities Fraud Class Action Against the Manufacturer of the Keurig Coffeemaker