Federal securities regulators have been slow to revamp rules abused by corporate insiders to trade their company stocks, according to a group of pension funds and a former SEC commissioner, the Wall Street Journal reported today. In a letter yesterday to the Securities and Exchange Commission, the Council of Institutional Investors urged the agency for the second time in four months to tighten rules on government-sanctioned trading plans that allow corporate executives and directors to sell shares despite potentially having knowledge of nonpublic information about their companies. Corporate insiders are barred from trading when in possession of potentially market-moving, nonpublic information. In 2000, the SEC gave executives a way to trade even when they do possess private information, through "10b5-1" plans, though an executive isn't supposed to have inside information when such a plan is set up. The plans involve a preset schedule for selling and buying company shares. Having the plan can be a strong defense against allegations of improper trading. "Weaknesses inherent in 10b5-1 plans were well known to the commission, to the commission's staff, and to practitioners when the rule was first adopted," said former SEC Commissioner Joseph Grundfest. "Many of us thought that, with the accumulation of experience, the commission would proceed, over time, to refine the rule so that it would better protect investors without imposing unreasonable burdens on executives and insiders," said Grundfest, now a law professor at Stanford University. "We have accumulated the experience but have yet to refine the rule."
