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 | Compliance and Disclosure Interpretations are made available by the SEC to reflect the views of the staff of the Division of Corporation Finance. The SEC post these via their website and provides a disclaimer to the effect that they are not rules, regulations, or statements of the SEC and that the SEC has neither approved nor disapproved these interpretations.
The SEC also disclaims that these positions do not necessarily contain a discussion of all material considerations necessary to reach the conclusions stated, and they are not binding due to their highly informal nature. Accordingly, the SEC stipulates that the responses are intended as general guidance and should not be relied on as definitive. The SEC further disclaims that there can be no assurance that the information presented in these interpretations is current, as the positions expressed may change without notice.
Nonetheless, despite the SEC disclaimers, the published "Compliance and Disclosure Interpretations" provide highly useful aids to understanding the SEC's perspective on the issues discussed.
The bracketed date following each interpretation is the latest date of publication or revision by the SEC |
Question 120.17 Posted by DigitalDominion
(726)
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| Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: After the written trading plan described in Question 120.11 has been in effect for several months, the person terminates the selling plan by calling the broker and canceling the limit order. Standing alone, does the act of terminating a plan while aware of material nonpublic information, and thereby not engaging in the planned securities transaction, result in liability under Section 10(b) and Rule 10b-5?
Answer: No. Section 10(b) and Rule 10b-5 apply to any fraudulent conduct "in connection with the purchase or sale of any security." The “in connection with” requirement is satisfied when a fraud “coincides” with a securities transaction. See, e.g., SEC v. Zandford, 535 U.S. 813 (2002) and Merrill Lynch, Pierce, Fenner & Smith, Inc., v. Dabit, 547 U.S. 71 (2006). [Mar. 25, 2009]
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[675]
Question 120.20
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Is the Rule 10b5-1(c) affirmative defense available where a person establishes a Rule 10b5-1 written trading plan while aware of material nonpublic information if the plan is structured so that plan transactions will not begin until after the material nonpublic information is made public?
Answer: No. [Mar. 25, 2009]
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[581]
Question 120.18
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Does termination of a plan affect the availability of the Rule 10b5-1(c) defense for prior plan transactions? Does canceling one or more plan transactions affect the availability of the Rule 10b5-1(c) defense for prior plan transactions?
Answer: Termination of a plan, or the cancellation of one or more plan transactions, could affect the availability of the Rule 10b5-1(c) defense for prior plan transactions if it calls into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" the insider trading rules within the meaning of Rule 10b5-1(c)(1)(ii). The absence of good faith or presence of a scheme to evade would eliminate the...
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[571]
Question 120.25
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Is the institutional defense provided by Rule 10b5-1(c)(2) available to the issuer of the securities for a repurchase plan?
Answer: Yes, assuming the conditions of that rule are satisfied. [Mar. 25, 2009]
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[566]
Question 120.19
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Does canceling one or more plan transactions affect the availability of the Rule 10b5-1(c) defense for future plan transactions?
Answer: The cancellation of one or more plan transactions would be an alteration or deviation from the plan, which would terminate that plan. The Rule 10b5-1(c) defense would be available for transactions following the alteration only if the transactions were pursuant to a new contract, instruction or plan that satisfies the requirements of Rule 10b5-1(c). See Securities Act Release No. 7881 (Aug. 15, 2000), at fn. 111 and Question 120.16. Moreover, if a person established a new contract, instruction or plan after terminating a prior plan, then all...
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[520]
Question 120.21
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: A person purchases employer stock through her participation in the employer's 401(k) plan. These purchases are made pursuant to bi-weekly payroll deductions. The 401(k) plan also allows employees to transfer the assets in their accounts among funds within the plan (including the employer stock fund) through fund-switching transactions. Is a Rule 10b5-1(c) defense available for payroll deduction purchases under the 401(k) plan?
Answer: If an employee acts in good faith and is not aware of material nonpublic information at the time she provides written or oral instructions as to payroll deduction purchases, a defense would be available for those purchases under Rule 10b5-1(c)....
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[519]
Question 120.22
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Under the 401(k) plan described in Question 120.21, is a Rule 10b5-1(c) defense available for fund-switching transactions that result in purchases or sales of employer stock?
Answer: If an employee acts in good faith and is not aware of material nonpublic information at the time she provides written or oral instructions as to a fund-switching transaction under the 401(k) plan, a defense would be available for that transaction under Rule 10b5-1(c). See Securities Act Release No. 7881 (Aug. 15, 2000), text at fn. 117-121. [Mar. 25, 2009]
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[496]
Question 120.23
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Could fund-switching transactions under the 401(k) plan described in Question 120.21 be considered "corresponding or hedging transactions" within the meaning of Rule 10b5-1(c)(1)(i)(C) with respect to payroll deduction purchases under the 401(k) plan?
Answer: Possibly, depending upon the facts and circumstances. Rule 10b5-1(c)(1)(i)(C) requires, as a condition to the exemption, that the purchase or sale be pursuant to the contract, instruction, or plan. The rule provides that a purchase or sale is not "pursuant to a contract, instruction, or plan" if, among other things, the person entered into or altered a corresponding or hedging transaction or position with respect to...
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[489]
SEC Charges 11 Individuals for Insider Trading Ahead of Merger Announcements
FOR IMMEDIATE RELEASE
2009-160
Washington, D.C., July 15, 2009 — The Securities and Exchange Commission today charged 11 individuals who were involved in separate insider trading schemes that were detected through surveillance of unusual trades preceding two different company merger announcements.
The SEC alleges that five individuals, including a former investment banker at Goldman Sachs & Co., illegally tipped or traded on confidential information ahead of an announcement last year that Liberty Mutual Insurance Company would acquire Safeco Corporation, a Seattle-based insurance company.
The SEC additionally alleges that six other individuals illicitly traded on non-public information in advance of an announcement in 2005 that private equity firm Odyssey...
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[485]
Question 120.24
Section 120. Manipulative and Deceptive Devices and Contrivances: Rule 10b5-1
Question: Under applicable state law, an oral agreement would be considered a binding contract. Does the contract nevertheless need to be written to establish a defense under Rule 10b5-1(c)?
Answer: No. The rule specifies when a writing is necessary to establish a defense. The rule does not require a binding contract (Rule 10b5-1(c)(1)(i)(A)(1)) or an instruction to another person (Rule 10b5-1(c)(1)(i)(A)(2)) to be written. In contrast, the rule requires a plan for trading securities (Rule 10b5-1(c)(1)(i)(A)(3)) and a formula, algorithm or computer program for determining amounts, prices and dates of transactions (Rule 10b5-1(c)(1)(i)(B)(2)) to be written. [Mar. 25, 2009]
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