Since it first enacted the Jumpstart Our Business Startups (JOBS) Act in 2012, Congress has continued to modify the original JOBS Act as part of an ongoing effort to try to boost small businesses and business startups. For example, in 2015, Congress acted to expand a number of the JOBS Act’s provisions. On July 17, 2018, the U.S. House of Representatives passed what has been referred to as the JOBS Act 3.0. By a vote of 406-4, the House passed the JOBS and Investor Confidence Act of 2018, which is designed to further encourage capital formation and market access for small business enterprises. The House Financial Services Committee’s July 17, 2018 statement about the legislation can be found here.
Continue Reading House Passes JOBS Act 3.0

Seventeen years ago this month, the SEC instituted Rule 10b5-1 to permit company insiders – who often hold a significant portion of their wealth in company stock – to sell their shares without incurring liability under the federal securities laws. The Rule permits insiders who have traded in company shares to rebut the inference of scienter by showing that the trades were pre-scheduled and not suspicious. Over time, questions have been raised about the ways that some company executives have tried to use the plans. As discussed in an August 10, 2017 memo by the Simpson Thacher law firm on the CLS Blue Sky Blog entitled “Combatting Securities Fraud with 10b5-1 Trading Plans” (here), “sales made under 10b5-1 plans can substantially assist a company in getting such a claim dismissed by helping to rebut the inference of scienter that normally results when plaintiffs present evidence of insider stock sales during the class period.”

However, as discussed further below, while the plans can provide a substantial defensive boost, there are a number of steps companies should take in order to improve the likelihood that the existence of the plan will provide the intended protection.
Continue Reading Rule 10b5-1 and the Defense of Securities Fraud Claims

As reflected in the most recent dismissal motion rulings in the Countrywide subprime securities lawsuit, the proper use of a Rule 10b5-1 trading plan can provide a substantial defense to allegations of securities law violations. In her April 6, 2009 opinion (here), Central District of California Mariana Pfaelzer dismissed the insider trading allegations

Most of the focus on Rule 10b5-1 plans lately has been on possible abuses (refer, for example here). Indeed, one of the reasons the court cited in the dismissal motion denial in the Countrywide derivative lawsuit pending in California was concern about Angelo Mozillo’s possible manipulation of his 10b5-1 plan (refer here). 

As a result of recent academic research (refer here and here) and other recent developments, Rule 10b5-1 trading plans have attracted critical attention, including SEC scrutiny (refer here). Allegations of alleged misuse of Rule 10b5-1 trading plans have even made their way into shareholder litigation. For example, allegations of Andrew Mozillo’s alleged misuse

In October 2000, the SEC promulgated Rule 10b5-1 to provide company insiders with a way to trade their shares in company stock without incurring securities law liability, through the pre-trading adoption of a written trading plan. Despite the Rule’s protective purpose, concerns have arisen more recently about Rule 10b5-1 plan abuses, as I noted in