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10b5-1 Plan Abuse

BY J. David Washburn, Spencer C. Barasch
August 29, 2007

The latest hot topic in corporate executive abuses may be manipulation of trades under prearranged trading plans established pursuant to Rule 10b5-1. Little has been said about the red flags that could indicate abuse of 10b5-1 plans. This article attempts to offer some practical guidance to corporate counsel to ensure that their 10b5-1 plans steer clear of SEC enforcement scrutiny.

D'j' vu

Reminiscent of the 1980s, the heyday of Wall Street protagonist Gordon Gekko, along with real-life Wall Street insiders (and eventual felons) Ivan Boesky and Michael Milkin, who mesmerized the securities industry, today's equity markets are soaring and public companies are reaping extraordinary benefits. Consistent with its response to the 1980s merger and acquisition frenzy made infamous by Gekko's credo that 'greed is good,' the SEC again has made insider trading its top enforcement priority, partly in response to recent skepticism in Congress about the agency's effectiveness in policing the markets for insider trading.

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