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Thursday, April 25, 2013

Executives and Directors Planning to Unload Shares: A Front for Insider-Trading?

The U.S. Securities and Exchange Commission (SEC) initiated preset-trading arrangements known as 10b5-1 plans in 2000 so corporate executives and nonexecutive directors would have a way to announce their plans to sell shares. According to John Nester, a spokesman for the SEC, the 10b5-1 plan was devised “to give executives a way to sell some shares of their own companies despite being exposed to nonpublic information.” Therefore, the plans must be set up when the executive or director does not possess inside information, so as to obviate any potential charges of insider trading. The question I address here is whether the plans are subject to abuse by non-executive directors. Such abuse could involve the exploitation of a conflict of interest.

The full essay is at Institutional Conflicts of Interest, available in print and as an ebook at Amazon.