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Matt Levine

Biotech CEO Sure Knows When to Sell His Stock

Executives of public companies tend to get a lot inside information about their companies in the course of their day. It would be weird if they didn't. This can make it hard for them to sell stock legally, since selling stock while you have inside information is illegal. And executives should be able to sell stock sometimes, because otherwise they'd have no money, except for their other money. So the law allows them to set up 10b5-1 plans, which are automated plans that they put in place when they don't have inside information, and that sell stock in the future according to fixed instructions. So you release earnings, and the next day -- when you're "clean" -- you enter a contract that says, "I will sell 10,000 shares on the first day of every month for the next two years, as long as the stock price is above $55."

There is a lot of speculation about how these plans can be gamed, and it sure feels like they should be easy to game by setting up 10b5-1 plans and then changing or canceling them when you get inside information, but I think a lot of that speculation is overblown. It's harder than it looks to use a 10b5-1 plan as cover for making trading decisions based on undisclosed inside information.