Insider creativity

We have a rule preventing company insiders from trading their stocks on non-public material information.

This rule is frustrating to some insiders who otherwise could make millions of dollars. But what if there was a way around this rule?

Well, there is. Another SEC rule, Rule 10b5-1, allows company insiders to set up a predetermined plan to sell company stocks. The price, amount, and sales dates must be specified in advance. The rule assumes that insiders can’t possibly match these future trading dates with the release of material information. That’s an obviously wrong assumption in my opinion. Insiders are the very people who are most likely to be in a position to control when material information will be shared with the public.

And so, today, NPR reports that the Pfizer CEO implemented his 10b5-1 plan last August 19 and, the next day, announced positive news related to Pfizer’s work on a COVID vaccine. Pfizer stock soared. Then, this Monday, Pfizer announced that its vaccine candidate was found to be 90% effective. The stock soared again. Oh, and Monday was also the day that the CEO sold $5.6M worth of stock, as detailed in the plan filed in August.

Purely coincidental, right?

Of course we can expect the SEC to change the rule to prevent this type of abuse. And then we can look forward to the creativity of another insider.

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