SEC Looking at 10b5-1 Plans

The Securities and Exchange Commission is looking at 10b5-1 plans, plans that allow insiders holding equity incentives in their company to sell their stock on a prearranged schedule. The plans can exempt the insiders from blackout periods on trading because of insider knowledge. The plans must be written and set up in advance of the insiders having any information that might be relevant. A study by Alan Jagolinzer of Stanford found that executives using 10b5-1 plans had abnormal returns 4.1 to 7.4 percent above what would have been expected. One way that could happen is if executives manipulate the release of earnings reports to be fortuitously timed with sales and purchases.