A Rule 10b5-1 plan would allow the sale to take place. A publicly announced Rule 10b5-1 plan alerts the investing public that trades by executives are merely part of a preexisting plan and are not based on either information the executive may have about the company or the executive's views about the company or its prospects. Rule 10b5-1 will not prevent a lawsuit based on an allegation that a person traded on the basis of material nonpublic information. Even if effected pursuant to a bona fide Rule 10b5-1 plan, a trade made by an insider while in possession of material nonpublic information fosters the impression that the insider profited unfairly and took advantage of his or her position at the expense of the investing public. This can result in unfavorable press and media coverage and extreme embarrassment for the company and the insider who engaged in the trade.
Many public companies require officers and directors to own shares.
Rule 10b5-1 plans make it easier, not more difficult, for these individuals to dispose of their shares. Monitoring many different plans presented by directors, executive officers and employees may prove to be unwieldy from an administrative standpoint. Rule 10b5-1 is not a panacea for insider trading issues affecting public companies, although plans adopted under it may prove advantageous for some. What is clear, however, is that public companies must decide upon the position they will take with respect to such plans. In that regard, the adoption of the rule presents all public companies with the impetus to reexamine their own insider trading policies to determine if they need revamping.