A group of lawmakers recently forwarded correspondence to the Securities and Exchange Commission (SEC), supporting a proposed SEC rule regarding 10b5-1 plans addressing corporate executives’ safe harbor trading.
U.S. Sens. Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), Tammy Baldwin (D-WI), and Bernie Sanders (I-VT) sent a letter to SEC Chair Gary Gensler regarding the proposed rule, maintaining it would bolster transparency and curb corporate executive abuse of trading their company’s stock.
The SEC created the 10b5-1 safe harbor 12 years ago to allow corporate executives to sell their stock holdings without running afoul of insider trading laws.
“While these plans were designed to prevent insider trading, evidence indicates that corporate insiders have misused them to obtain huge windfalls making questionable trades at the expense of ordinary investors,” the legislators wrote. “A recent report in the Wall Street Journal identified ‘scores of examples where company insiders adopted a plan when a quarter was nearly complete and sold stock under the plan before that quarter’s results were announced’ and found that ‘insiders who sold within 60 days reaped $500 million more in profits than they would have if they sold three months later,’ indicating that the abuse of 10b5-1 plans is widespread and costly, further underscoring the urgent need for stronger rules.”
The senators are seeking the SEC’s expeditious consideration of additional stronger rules preventing the practices while protecting capital markets.
Additional SEC proposal strengthening measures favored by lawmakers include extending the “cooling-off period” between the adoption of a trading plan and the execution of that plan from 120 days to 180 days and eliminating the availability of a safe harbor for single-trade plans, rather than allowing one single-trade plan per 12 month period.