SEC plans to go after market manipulation on social media, executive insider trading

SEC

Securities and Exchange Commission Chairman Gary Gensler said Monday that his agency is focused on adopting new rules to guard against company executives using private information to opportunistically sell shares of companies they oversee.

Gary acknowledged that the SEC must come up with new strategies to guard against market manipulation on social media.

The SEC adopted regulations about 20 years ago, called 10b5-1 plans, that enable company insiders to buy and sell securities in their own company if those transactions are made by a third party who is not aware of material, non-public information.

One concern Gensler has is that there is no “cooling off period” mandated by the SEC for when a 10b5-1 plan is adopted and when it can start trading, though research shows that 40% of such plans begin trading within just two months after they are opened, while 14% start trading within a month.

Futhermore, there is no limitation as to how many 10b5-1 plans insiders can open, making it easier for an insider to shut down one or many plans if he has public information that suggests that it would be profitable to do so.

“Insiders can cancel a plan when they do have material non-public information. This seems upside-down to me. It also may undermine investor confidence,” Gensler said. “In my view, canceling a plan may be as economically significant as carrying out an actual transaction,” he added. “Thus, I’ve asked staff to consider limitations on when and how plans can be canceled.”

The Journal asked Gensler about revelations that the SEC wrote to Tesla TSLA, +1.01% CEO Elon Musk complaining that he had violated a 2018 settlement to presubmit tweets that discuss production figures for his various companies. The letters, according to the Wall Street Journal, said that Musk continues to violate that provision of the settlement, though “the feud appears to have ended in a stalemate without further consequence to Tesla or Mr. Musk.”

Gensler declined to comment on Tesla specifically but noted that technological advances will always create tensions between the SEC and the companies it oversees. He pointed to the short squeezes in shares of Gamestop Corp. GME, +12.74% in January as an example.

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