From what I understand if a CEO sells stock in their company and the stock price then goes down significantly within less than a year, they can get indicted for "insider trading" and face 5 to 10 years in jail.
Does this basically mean that a CEO basically has to hold onto stock indefinitely and only sell when they are sure the company is not facing a decline? So, basically sell and pray the company does not tank?
Insiders, such as a CEO, are allowed set up predetermined trading plans to avoid accusations of insider trading:
Rule 10b5-1 is established by the Securities Exchange Commission (SEC) to allow insiders of publicly traded corporations to set up a trading plan for selling stocks they own. Rule 10b5-1 allows major holders to sell a predetermined number of shares at a predetermined time. Many corporate executives use 10b5-1 plans to avoid accusations of insider trading.
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