Newspaper article THE JOURNAL RECORD

Rule Change Will Make It Easier for Insiders to Make Legal Trades

Newspaper article THE JOURNAL RECORD

Rule Change Will Make It Easier for Insiders to Make Legal Trades

Article excerpt

SAN FRANCISCO -- Starting next month, it should get easier for the Securities and Exchange Commission to prosecute illegal insider- trading charges and for employees to avoid them.

The reason for this apparent contradiction is SEC rule 10b5-1, which was adopted with little fanfare last month but could have profound implications for employees, directors and shareholders of public companies.

The rule, which takes effect Oct. 23, says insiders can legally buy or sell their company's shares while they are aware of material nonpublic information if the trade was specifically set forth in a written contract before the person acquired the inside information.

This is the first time the SEC has established an "affirmative defense" against charges of illegal insider trading.

It could be a godsend for executives who own a lot of company stock and want to diversify their holdings but have a hard time finding a window of opportunity to sell.

Many firms prohibit officers, directors and some lower-level employees from buying or selling stock during a period that typically extends from two to four weeks before the end of a quarter until a few days after the quarter's results have been announced.

This handcuffs insiders for up to 24 weeks a year. On top of that, no employees can trade when they know about mergers, management changes, factory mishaps or any other information that could affect the company's stock price.

"It's very hard for directors and officers of companies that are active in the mergers-and-acquisitions market to find times when they don't know material nonpublic information," says Brian Pastuszenski, a partner with the Boston law firm Testa Hurwitz & Thibeault.

In the future, executives could set up a regular program -- such as selling 5,000 shares at the market price on the 30th day of every quarter -- and avoid insider-trading charges, as long as the program meets certain criteria.

These plans can be altered, as long as the insider doesn't have any material nonpublic information at the time the change is made.

"The SEC is essentially creating a safe harbor," Pastuszenski says. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.