SEC Law

When can you sell your stock without committing insider trading? What special rules apply to senior executives and directors?

SEC Law counsels optionholders on how to avoid insider trading and other securities-law violations. This overview page presents selected articles and FAQs from the subtopics in this section. For the full content of a subtopic, click on a link in the upper left.

Test and improve your knowledge with our Insider Trading quiz and its study guide in the answer key.

Articles   (Jump to FAQs)

How To Use Rule 10b5-1 Trading Plans To Sell Company Stock (Part 1) 

Darryl Rains and Sunil Kulkarni
Insider trading restrictions can cause constant headaches for executives and their companies. Rule 10b5-1 trading plans are an ideal solution when they are properly drafted and implemented.

How To Use Rule 10b5-1 Trading Plans To Sell Company Stock (Part 2) 

Darryl Rains and Sunil Kulkarni
Insider trading restrictions can cause headaches for executives and companies. Rule 10b5-1 trading plans are an ideal solution. Part 2 explores their restrictions and flexibility, and how to disclose them.

Prevent A "Martha Stewart Moment":
Insider Trading In Your Company's Stock 

Bruce Brumberg
Whether you think that Martha Stewart is guilty or innocent, or that the government should not have brought criminal charges against her, she made a number of rash mistakes that we all can learn from to avoid civil or even criminal charges of insider trading.

How Executives And Directors Can Avoid SEC Troubles Before Trading Their Company Stock
(Part 1) 

Merrill Freed and Steven Schraibman
Your advisors say now is the time to buy or sell your company stock or to exercise options. But before you proceed, you'd better understand the securities laws that apply. Otherwise, you risk losing your profits, paying big fines, attracting unwanted media attention, and perhaps even going to jail. The storm of controversy over the backdating of stock option grants shows how closely executive stock sales are scrutinized.

How Executives And Directors Can Avoid SEC Troubles Before Trading Their Company Stock (Part 2) 

Merrill Freed and Steven Schraibman
Your advisors say now is the time to buy or sell your company stock or to exercise options. But before you proceed, you'd better understand the securities laws that apply. Part 1 focused on insider trading and Rule 10b5-1 plans. This article looks at other pitfalls of securities law, including short-swing-profits violations under Section 16(b), and required SEC filings, such as Form 4 and Form 144.

Insider Trading Prevention & Education 

Bruce Brumberg
myStockOptions.com
Editor-in-Chief Bruce Brumberg developed this PowerPoint presentation for talks and meetings on insider trading. With colorful examples from recent cases, it covers fundamentals, penalties, Rule 10b5-1 preapproved trading plans, and lessons that the cases of Martha Stewart/ImClone and Joseph Nacchio/Qwest can teach. (Premium members can view the presentation in PDF from the above link and may request permission to use it at their companies. Please allow up to a minute for the presentation to ful

Elevated Enforcement

Julius Melnitzer
Inside Counsel, 2/08
The SEC's intensified search for insider trading includes enhanced scrutiny of Rule 10b5-1 trading plans.

Insider Trading Makes Comeback In Options 20 Years After Boesky

Bob Drummond
Bloomberg.com, 6/20/07
A large volume of corporate acquisitions and well-timed investments in target companies has set off alarms about insider trading at the SEC and in stock exchanges around the world.

Hints, Tips, And Handcuffs

The Economist
CFO.com, 3/13/07
In response to a growing number of egregious cases, the SEC is making insider trading investigations a priority.

The SEC Is Eyeing Insider Stock Sales

Jane Sasseen
BusinessWeek, 3/19/07
Concerned about patterns of trades before bad news and abuses that signal insider trading, the SEC is looking into Rule 10b5-1 plans.

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FAQs   (Jump to articles)

UPDATED! My company backdated more stock options than just those of the senior executives. How does this affect employees like me and the taxation of my stock grants? 

At a minimum, do not expect any new stock option grants with an exercise price lower than the market price on the grant date. The tax treatment varies by type of grant. Some companies are freezing exercises and ESPP purchases and are making modifications in grants by...

What is insider trading? Do you have to be an "insider" or executive to commit it? 

Insider trading occurs when someone possesses inside information about an important development at a company and then uses this information to...

Are sales of shares by executives and directors of a public company subject to any securities-law restrictions? 

Yes. Stock held by an "affiliate" (e.g., any director or executive officer) of a public company generally must be ...

I want to set up a program with my company and broker in which I automatically exercise options and sell stock to pay a regularly expected bill as it's received, such as my child's tuition. Can this prearranged selling plan violate insider trading laws and my company's blackout rules? 

You are in luck. SEC Rule 10b5-1 now provides an affirmative defense...

What is insider trading? 

If you know material confidential information about a public company (your company or another company) and trade securities on that information or tip others about it before the information is publicly released, you have committed insider trading...

What's wrong with insider trading? 

Insider trading violates the basic philosophy of fair capital markets...

UPDATED! What are the requirements that affiliates (i.e., executives or directors) must follow to sell their stock to the public under Rule 144? 

This is the most common way senior managers and directors sell their stock. There are five basic requirements of a Rule 144 sale. These apply to the resale of stock not registered with the SEC (i.e., restricted securities) and even to...

What are Forms 3, 4, and 5? When are they filed with the SEC? 

Senior executives, directors, and large-block shareholders need to make ongoing filings about their company stock holdings to report any changes. The initial report to be filed by a Section 16 reporting person is Form 3. It must be filed with the SEC within...

I am a senior executive. When do I make my Form 4 filing for restricted stock, restricted stock units, and performance shares? 

Within two business days of the grant, you file Form 4 electronically under the SEC's Section 16 rules. At vesting, depending on the withholding method...

For Rule 144 resale requirements, what is the difference between (1) restricted securities I own as a company officer or director that are not registered with the SEC and (2) company shares I bought on the open market? 

Rule 144 requires directors, officers, and large-block shareholders to follow certain...

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