SEC Is Looking Into Insider Abuse of Stock Plans

A stock plan is an automatic stock trading scheme. It is frequently used by senior corporate officers, because (theoretically) it provides insulation from the temptations or accusations of insider trading.

The SEC is now looking into whether these plans are being manipulated by insiders.

Introduced in 2000 as part of a broader securities reform, these plans enable executives to buy and sell company stock virtually year-round, regardless of insider knowledge or trading "blackouts." Financial planners and brokers tout the plans as a smart way for executives to take money off the table and diversify their portfolios.

The main stipulation is that executives must set up a written, systematic trading plan when they have no inside information, then hand off the actual trading to a broker or other third party.

But experts say the rules are so flexible that they have led to a wide spectrum of practices and disclosures. Some executives trade in consistent batches at recurring intervals, sometimes on a daily basis. Others trade stock based on undisclosed formulas that can be pegged to daily stock prices, moving averages or other variables.

Once again we are seeing that market deregulation frees the market to be corrupt to a far larger degree than it frees the market to be efficient. We need toi bring back all those FDR era laws that have been repealed starting in the mid 1970s.

This repeal has created nothing but corruption and pain for the little guy.