Insider Trading Laws and Employee Stock Compensation Randall J. Fons and James J. Beha II

Pages185-194
185
CHAPTER 12
Insider Trading Laws and
Employee Stock Compensation
Randall J. Fons and James J. Beha II
Public companies frequently compensate corporate officers and directors
with company stock in the form of employee stock options, restricted
stock, or stock grants. As a result, officers and directors frequently need
to transact in company stock, either by exercising options or selling stock.
This chapter addresses two issues related to the interaction between
employee stock compensation and insider trading laws. First, we discuss
the application of insider trading laws to an employee exercising employee
stock options while possessing material non-public information. Second,
we discuss 10b5-1 plans, written plans for future purchases or sales of
company stock, which (1) permit company insiders to sell stock without
violating insider trading rules and (2) provide an affirmative defense to
charges of insider trading.
1. The Application of Insider Trading
Laws to Employees Exercising
Employee Stock Options
Several years ago, following the options “backdating” scandal, many
commentators considered the potential insider trading implications from
granting employee stock options to officers and directors when those
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