In the last five years, numerous CEOs and other top executives have been investigated and prosecuted by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for trading in the securities of their companies. The government has ramped up its onslaught on the C-suite as the SEC and DOJ recently announced the first-ever prosecution of a CEO for insider trading based on an executive’s use of a 10b5-1 trading plan, a good faith defense in the federal securities laws, specifically designed to protect executives against insider trading allegations. The government has also reportedly launched investigations into trading by former Silicon Valley Bank executives in connection with the avoidance of millions of dollars in losses through 10b5-1 plans before the bank’s collapse.
Rule 10b5-1 plans allow executives to buy and sell their company’s stock without violating insider trading laws because trades are executed according to a predetermined plan, rather than by the insider directly.
