Probe of 10b5-1 abuses set to expand
It was huge news last month when the SEC launched a narrow probe of 10b5-1 programs, specifically the ability of some company executives to use these common programs to fortuitously time their insider trades.
The investigation seems to have been driven mainly by media coverage. An article in the WSJ "found profitable and well-timed trades by more than 1,400 executives."
It's fair to say that corporate boards have been put on notice over this issue. Now comes word from the WSJ that the SEC has expanded the probe significantly. The initial investigation by the SEC in coordination with the FBI focused on just 7 instances of possible 10b5-1 abuse. The U.S. Attorney in Manhattan sent subpoenas to five of these companies. Investigators have since widened their field of inquiry to include many more companies, thought the exact number is unclear.
I suggested earlier that now is the time for corporate boards to take matters into their own hands. At a minimum, they need to review their programs with an eye on whether some of the resulting trades could raise the eyebrows of investigators. At this point, self-reporting of dubious trades and program abuses would have to be considered. The probe so far resembles the options backdating probe of several years ago, which resulted in more than a few prosecutions.
The stakes are high now, and will likely go higher soon.
- here's the article
Companies must review 10b5-1 plans