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 would have to 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 were subject to abuse by non-executive directors. By abuse, I mean the exploitation of a conflict of interest.
The full essay is in Institutional Conflicts of Interest, a book that is available at Amazon.
