Insider Abstention and Rule 10b5-1 Plans

Company insiders will typically be in possession of material non-public information (MNPI) about their companies. In order to allow insiders the opportunity to trade, the SEC adopted Rule 10b5-1, which provides an affirmative defense to insider trading liability if the trades are made pursuant to a written plan or trading instruction entered into when the trader was not aware of MNPI. Over the years, there has been considerable concern that insiders were abusing Rule 10b5-1 plans by adopting plans just prior to trading, adopting multiple plans, or even terminating plans when they turned out to be unprofitable. The SEC recently adopted new rules designed to curb some of the more abusive practices, but one significant problem remains: while Rule 10b5-1 plans are supposed to be irrevocable, insiders who back out of plans have so far escaped liability under the central anti-fraud provision of the federal securities laws, principally because a violation of that provision requires an actual trade. The issue of “insider abstention”—insiders who decide not to trade based on MNPI—has long bedeviled insider trading law and policy. Insider abstention is typically undetectable and unknowable, raising insurmountable issues of proof, while the general requirement that fraud be “in connection with the purchase or sale of a security” imposes a rigid legal barrier. But Rule 10b5-1 plans stand on a different evidentiary footing: they are written plans, communicated to third parties, creating a clear record of intent. The only real question is whether legal liability can attach in the absence of an actual purchase or sale of a security. Traditionally, the answer to this question has been no. The SEC staff has stated on a few occasions that cancellation of a Rule 10b5-1 plan would not in itself lead to liability under Rule 10b-5 because terminating a plan would not meet the “in connection with” requirement. However, Rule 10b5 is not the only statutory provision that has been used to prosecute insider trading. The SEC has frequently prosecuted insider trading under Section 17(a) of the Securities Act, a provision that applies not only to the “sale” of securities but extends more broadly to “offers” to sell securities. And criminal authorities have increasingly been prosecuting insider trading under mail and wire fraud statutes that do not have an “in connection with” requirement at all. These other statutory provisions could provide a basis for insider trading liability in the context of a cancelled or terminated Rule 10b5-1 plan

The Process of Creation: A Novel Methodology for Analyzing Multimodal Data

In the 21st century, meaning making is a multimodal act; we communicate what we know and how we know it using much more than printed text on a blank page. As a result, qualitative researchers need new methodologies, methods, and tools for working with the complex artifacts that our research subjects produce. In this article we describe the co-development of an analytic methodology and a tool for working with youth produced films as multimodal artifacts of youth engagement with identity. Specifically, we describe how to employ this multimodal framework in data analysis, with an emphasis on how different modes interact with one another, and how new meanings are made possible through multimodal interactions

Civil Penalties Against Public Companies in SEC Enforcement Actions: An Empirical Analysis

Civil penalties have become an increasingly important part of the Securities and Exchange Commission’s (SEC) enforcement program. The SEC now routinely obtains large civil penalties in enforcement actions, regularly trumpets those penalties in press releases, and highlights the penalty amounts in its end-of-the-year statistics. Civil penalties are defended on the ground they are necessary to make unlawful conduct costly and painful, and thereby deter misconduct and promote adherence to lawful and ethical standards of behavior. But with respect to one category of cases, civil penalties have always been controversial: when civil penalties are assessed against public companies, the cost of the fines are ultimately borne by the shareholders who are not responsible for the misconduct, and who indeed may have already been harmed thereby. Nevertheless, over the last decade the SEC has moved decidedly in favor of assessing civil penalties when public companies engage in violative conduct. Civil penalties are now the norm and a standard part of the resolution of most public company enforcement actions. This Article is the first attempt to synthesize and analyze a comprehensive dataset of SEC enforcement actions against public companies with an eye to civil penalties. It shows that penalties are not only routine but a central element in most negotiated resolutions of enforcement actions against public companies, as part of a package of relief that reflects what appears to be a studied compromise between statutory charges and monetary sanctions. One trend, which has become more pronounced over the last several years, is for the SEC and public companies, particularly those in the financial services industry, to settle enforcement proceedings through the entry of in-house administrative orders that include non-scienter-based charges, the payment of a civil penalty, and no individual charges