Thursday, November 12, 2020
Pfizers's CEO sold about 60% of his stake in the company on the same day that Pfizer announced vaccine trial results. These sales reportedly occurred pursuant to a pre-arranged 10b5-1 plan, which Pfizer adopted on August 19, 2020. Pfizers's stock rallied over 14% on the release of vaccine trial information on the day the CEO liquidated nearly two-thirds of his holding.
Of course, Pfizer is not the only company to release curiously positive results in periods coinciding with their pre-arranged 10b5-1 plans. Moderna also released positive information on a similar schedule. Wharton's Daniel Taylor provided context:
Taylor, of the Wharton business school, said the stock sales by Pfizer's CEO brought to mind similar concerns with another coronavirus vaccine-maker, Moderna. As NPR reported in September, multiple executives at Moderna adopted or modified their stock-trading plans just before key announcements about the company's vaccine. Those executives have sold tens of millions of dollars in Moderna stock, even though the company has not completed its vaccine trials.
"It's troubling to me that the general counsel or the internal controls of these companies would consider it legitimate to adopt a 10b5-1 plan one day before a major vaccine announcement," said Taylor. "If this isn't a wake-up call for the SEC and a wake-up call that we need to reform these 10b5-1 plans, I don't know what it is."
The SEC may need to take a close look at 10b5-1 plans if the research indicates that companies are manipulating information flow to the markets in order to maximize their personal returns around pre-determined trading dates. I'm not certain whether these plans must now be publicly disclosed in advance or not, but that could be a simple place to look first.
Thanks to Haskell Murray, Kurt Wolfe and others for contributing and pointing out that these plans are not currently mandatory disclosure items:
This is a few years old but suggests plans don’t have to be disclosed publicly (but may be helpful to do so). https://t.co/LsNrAzjd8j— Haskell Murray (@HaskellMurray) November 12, 2020
.@TomDreisbach has done some excellent reporting on this. Worth a read👇— Kurt Wolfe (@Enforce_Update) November 12, 2020
Also, there was a helpful summary on the @Harvard_Law CorpGov board in 2013👉https://t.co/DjeQeED6MK (“there is no requirement to publicly disclose the adoption, amendment or termination of a 10b5-1 plan.”) https://t.co/CAEw3EKfgB
There are also doubts out there about whether or not we should require these plans to be disclosed and whether the SEC or Congress should make that decision. My tentative opinion is that SEC may want to mandate disclosure and continue to study the issue. Others, including Max Schatzow, think it's probably best for Congress to make that determination.
Agree that it’s important information, but it’s a question to be resolved by congress IMO. I’d argue that a cancer diagnosis is more material than personal wealth or the decision to diversify their equity holdings. Really difficult to draw the line.— Max Schatzow (@AdviserCounsel) November 13, 2020