Stuart H. Gelfond is a partner in the Corporate Department and Arielle L. Katzman is an associate at Fried, Frank, Harris, Shriver & Jacobson, LLP. This post is based on a Fried Frank publication authored by Mr. Gelfond and Ms. Katzman that was originally published on Insights, available here.
Given the SEC’s increased focus on insider trading by executives and the complicated determinations needed to decide if an executive or director has material non-public information, it is anticipated that the use of Rule 10b5-1 plans will continue to grow. Companies and their executives carefully should consider the benefits, and the shortfalls, of these plans.
Stock is routinely an important part of public company compensation, but insider trading restrictions (e.g., blackout periods and exposure to material non-public information (MNPI)), can pose a significant challenge to selling corporate stock. Rule 10b5-1 of the Securities and Exchange Commission (SEC) presents a valuable solution to such a dilemma, but there are nuances that need to be understood. Internal and external legal counsel should be familiar with the terms and application of the rule, which covers more situations than the common scenario.