DOJ and SEC Scrutinize Potential Misuse of Rule 10b5-1 Trading Plans by Corporate Directors Affiliated with Investment Advisers

May 09, 2013

Over the past four years, the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) have focused on insider trading involving private funds as one of their key targets in the fight against white collar crime. In 2009 and 2010, the government’s focus was on allegations of insider trading by persons affiliated with Raj Rajaratnam and his Galleon Group. In 2011 and 2012, the government’s investigations expanded to the use of expert networks to gain access to corporate insiders and consultants with knowledge of inside information. Moving into 2013, insider trading remains a government enforcement priority – particularly in connection with trading by hedge funds and private equity funds. The latest salvo in the government’s ongoing war against insider trading, as reported by the Wall Street Journal in a recently series of published articles, involves the potential misuse of Rule 10b5-1 trading plans by corporate directors affiliated with investment advisers. This OnPoint discusses: (1) how Rule 10b5-1 plans work generally; (2) the government’s current investigation into the potential alleged misuse of these plans; and (3) steps for investment advisers and corporations to consider in light of these new insider trading investigations.

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