The content of the letter is very similar to the bipartisan bill that passed the House almost unanimously in 2019. It calls for the following SEC actions:
- Describe how it ensures 10b5-1 plans are compliant with rules and regulations;
- List enforcement actions initiated in the last 5 years with regards to the plans;
- Consider implementation of a 4–6 month cooling off period between implementation or modification of a plan and the first permitted trade;
- Require that 10b5-1 plans be disclosed to the SEC prior to trading under the plan along with trades made; and
- Ensure that 10b5-1 adequately covers “short-swing” purchases and windfall profits that do not translate into long-term gains in the share price.
It is likely elements of the letter will be developed as new regulations, or at least best-practices strongly encouraged by investors and stakeholders.
Recent stock sales by pharmaceutical executives have again raised concerns with policy makers about regulations of 10b5-1 plans. Specifically, certain executives executed large sales which coincided with positive news about COVID-19 treatments. Previous concerns have highlighted sales just prior to companies announcing data hacks or other major cyber security risks.
Outlook: Companies remain in a challenging environment regarding executive stock sales. Press coverage of such sales is almost universally negative, but enhanced disclosures carry risks as well. For example, if a 10b5-1 plan sets certain price limits for sales, it could communicate de facto guidance about performance expectations.
