Whatever their legitimate purpose—and they do have one!—the structure or lack thereof of 10b5-1 executive stock-trading plans is more than a little perverse (even to Jay Clayton), insofar as they seem to offer a shield against any allegations of insider-trading while letting those holding them do things that would definitely be illegal without them. Like, for instance, cancelling a plan to sell a bunch of shares during a blackout period ahead of some sweet earnings, or initiating one to sell shares immediately during a blackout period ahead of some less sweet earnings. Or setting up a whole raft of plans for a whole range of possible outcomes and cancelling all but the most favorable once you know which will be most favorable, thanks to that sweet, sweet material non-public information you’ve got, use of which in any other trading forum would land you in prison.
Trades that occurred within 60 days of the plan’s establishment were more likely to avoid significant losses and to have come ahead of stock-price declines, according to a January study of more than 20,000 plans by researchers from Stanford University, the University of Pennsylvania and the University of Washington. After 60 days, the advantages disappeared….
Darren Lampert, chief executive of cannabis-equipment seller GrowGeneration Corp., established a 10b5-1 plan in September 2019 that executed a series of transactions while the stock traded for less than an average of $6 through last August. The plan was terminated after selling 70% of its anticipated 750,000 shares two days after the company said it would take legal action against a short seller that published a report about GrowGeneration’s management team….
About a third of plans since 2004 involve just a single trade, according to InsiderScore data…. Single-trade plans outperformed multi-trade plans regardless of the timing, according to Mr. Taylor’s research. “When it’s a single-trade plan, it’s abusive,” he says.
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