TheCorporateCounsel.net

If you haven’t had a chance to listen to Tuesday’s webcast on the Rule 10b5-1 amendments, be sure to check it out.  Our panel of experts had terrific insights into what the new regime requires and addressed many of the interpretive issues raised by the amendments & new disclosure requirements.  We continue to post lots of memos in our “Rule 10b5-1” Practice Area – including this one from Latham & Watkins, which addresses a number of questions arising under the amended rule.

One area of uncertainty is how amended Rule 10b5-1 will apply to an entity affiliated with an insider who has a 10b5-1 plan.  Here’s what the memo says about that issue:

I am a director or officer, and I want to establish a trust with its own Rule 10b5-1 trading plan. What cooling-off period applies to the trust, and would the trust’s trading plan be viewed as an overlapping plan in relation to my personal Rule 10b5-1 plan?

It depends on whether you have investment influence or control over the trust. If you do, the trust’s plan should be treated like the plan of a director or officer, subject to the longer cooling-off period of 90–120 days, the limitation against overlapping plans, and all other conditions under amended Rule 10b5-1 applicable to a director or officer. If you do not, then the trust should be treated like a person other than the issuer, director, or officer, thereby subject to the shorter 30-day cooling-off period and not treated as one of your own plans in determining whether you have an overlapping plan.

While this question addresses an insider’s trust, the question of whether the insider influences or controls any entity’s investment decisions is likely to be a key consideration in assessing how the rule applies to other insider-affiliated entities. That’s because when an insider influences an entity’s investment decisions, the entity has the ability to capitalize on MNPI in the insider’s possession.

– John Jenkins