Amid scrutiny of exec stock sales, SEC chairman echoes calls for 'cooling-off period' in trading plans
In a year when execs of vaccine developers frequently came under scrutiny for selling stock in the wake of positive news and stock surges, pre-scheduled trading schemes known as 10b5-1 are always central to their defense. But now the chairman of the SEC is calling for a rethink of that whole system.
Testifying at a Senate hearing, Jay Clayton suggested that leaders of biopharma companies should be barred from trading stock too soon after they update their plans.
“For senior executive officers using 10b5-1 plans to sell stock, I do believe that a cooling-off period from the time that the plan is put in place or is materially changed, until the first transaction, is appropriate,” he told the Banking Committee, per the Wall Street Journal. “Whether that’s four months so you cover a full quarter, or it’s six months—I can make arguments for either. I do think we should do it.”
Pfizer CEO Albert Bourla triggered the latest backlash when he netted $5.6 million by selling shares at the peak of the surge that followed the company’s release of positive news on its BioNTech-partnered vaccine. The trade was planned and pre-approved in an August update to his 10b5-1 plan. One advocacy group, Accountable Pharma, called for the company to implement a freeze on the sale of stocks to prevent “profiteering off of positive news.”
Previous criticism targeted a trio of Moderna execs — president Stephen Hoge, CEO Stéphane Bancel and CMO Tal Zaks — who have each cashed in tens of millions worth of shares.
That’s all perfectly legal as current SEC regulations only stipulate that the 10b5-1 must be “entered into in good faith and not as part of a plan or scheme to evade” rules against against insider trading.
Clayton, who is leaving his role at the end of the year, said he agreed with Sen. Chris Van Hollen (D-MD) that tighter guardrails are needed for the 10b5-1 plans.
Although he didn’t commit to specific SEC actions just yet, in a prepared testimony, he noted that his commission has urged market participants to maintain market integrity as well as follow corporate controls and procedures.
“Good corporate hygiene,” he said, must be paired with related controls “designed to prevent not only insider trading, but also the appearance of impropriety or misalignment of interest.”
It’s a position that he’s expressed in a letter sent to the House Financial Services Committee back in September, where he wrote there are practices companies should follow — which could also serve as the basis of legislation or future rulemaking.
The term he used there was “mandatory seasoning” or waiting periods, which would apply after the establishment of a plan as well as any modification, suspension or termination.
“Such seasoning periods not only help demonstrate that a plan was executed in good faith, but they also can bolster investor confidence in management teams and in markets generally,” the letter read.
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