DOJ And SEC Used Data Analytics To Target Insider Trading With 10b5-1 Plans

The DOJ and SEC have made no secret of their interest in combatting potential insider trading by high-level executives misusing Rule 10b5-1 plans. Those plans provide a potential safe harbor for executives trading their company's stock, but the SEC has expressed concerns in how those plans are used in practice and has provided new rules accordingly. The government has also made no secret that they are using data analytics to root out misconduct.

In recent cases filed, the DOJ and SEC both brought charges¹ specifically targeting trading on material non-public information (MNPI) through a Rule 10b5-1 plan. There, Ontrak's Chairman, Terren Peizer, was selling millions of dollars of the company's stocks while he allegedly knew that the company's relationship with its key customer was in peril. After that customer relationship was publicly severed, the stock price went down by over 40%, and the government alleges that Peizer saved $12 million for exiting the stock early.