Insider trading has shaped both the evolution of the Securities Exchange Commission (SEC) and the current state of securities law. The injustice of insider trading, especially as felt by everyday shareholders and investors, mandated action by government regulators. Consequently, the SEC enacted Rule 10b-5—a prohibition and prosecution on any corporate officials’ use of material, non-public information for private profit. In SEC v. Texas Gulf Sulphur Co., Rule 10b-5 grew into the sanction on insider trading that it is known as today. As case law whet Rule 10b-5’s reach on in- sider trading, corporate executives became increasingly concerned that necessary business transactions would be considered fraud. Thus, the SEC promulgated Rule 10b-5-1. Through this safe harbor, corporate officials could again purchase or sell shares in the companies they ran. Although the safe harbor is subject to certain limitations, abuse of Rule 10b-5-1 has become increasingly apparent. This article seeks to critically analyze the shortcomings of Rule 10b-5-1 and investigate potential courses of action that could remediate its insufficiencies.
Daniel J. Morrissey,
Taming Rule 10b-5-1: The Unfinished Business of Texas Gulf Sulphur,
SMU L. Rev.