Senators Call on SEC to Regulate 10b5-1 Plans

February 26, 2021

Senators Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), and Sherrod Brown (D-OH) requested the SEC review and reform policies covering 10b5-1 plans, which provide corporate executives with a method to trade company shares without triggering insider trading prohibitions.

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.

The letter requested that the SEC respond by Monday, February 22, 2021.  As of February 25, the SEC had not responded to the Senator's letter.

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.