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Planning To Avoid Insider-Trading Troubles

Martinek Paul J. | April 10, 2007

The ghost of insider trading investigations may be haunting the corporate landscape again these days, but judicious use of a “Rule 10b5-1 plan” to sell stock can still provide solid protection for executives who want to avoid the specter of a visit from the Securities and Exchange Commission.

The chief of the SEC’s Enforcement Division, Linda Chatman Thomsen, caused a stir last month when she warned that the Commission would be looking “hard” at trading conducted pursuant to Rule 10b5-1. “We want to make sure that people are not doing here what they were doing with stock options,” Thomsen said in a March 8 speech. “If executives are in fact trading on inside information and using a plan for cover, they should expect the ‘safe harbor’ to provide no defense.”

Thomsen’s remarks came on the heels of a December 2006 study released by Stanford University professor Alan Jagolinzer, which examined...

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