Rule 10b5-1

There are hundreds of filings each week disclosing sales of company stock according to pre-arranged plans.  These so-called 10b5-1 plans, require an executive to reserve a certain number of shares and then commit to selling a set amount each month (the normal duration) for a predetermined period of time.  The intent is clearly a good one since the drawn out schedule avoids the appearance that insiders are timing their sales to their own advantage.  Pre-arranged plans benefit the insiders as well because most companies have restrictive windows of a few days each quarter when insiders can buy and sell – such restrictions are designed to avoid any appearance of impropriety linked to a company’s most recent results. 

But the fact that these plans have proliferated leads to a general sense that they are being abused.  Case in point:  Critical Therapeutics (CRTX) filed an 8-K a few weeks ago announcing that the CEO had terminated his 10b5-1 plan after selling only 40,000 shares over  the past 4 months instead of the allotted 180,000 shares over 18 months.  Initial sales were at $8.65 but deteriorated to $6.48 at the end of January when the last of the pre-arranged sales was made.  And it might not surprise you that today, CRTX’s stock  price is $5.49.  In short, business as usual.