SEC plans to go after market manipulation on social media, executive insider trading, Gensler says

Securities and Exchange Commission Chairman Gary Gensler said Monday that his agency is focused on adopting new rules to guard against company executives using private information to opportunistically sell shares of companies they oversee, while acknowledging that the SEC must come up with new strategies to guard against market manipulation on social media.

The SEC adopted regulations about 20 years ago, called 10b5-1 plans, that enable company insiders to buy and sell securities in their own company if those transactions are made by a third party who is not aware of material, non-public information.

“In my view, these plans have led to real cracks in our insider trading regime,” Gensler said at the Wall Street Journal’s CFO Network Summit Monday.

One concern Gensler has is that there is no “cooling off period” mandated by the SEC for when a 10b5-1 plan is adopted and when it can start trading, though research shows that 40% of such plans begin trading within just two months after they are opened, while 14% start trading within a month.

Futhermore, there is no limitation as to how many 10b5-1 plans insiders can open, making it easier for an insider to shut down one or many plans if he has public information that suggests that it would be profitable to do so.

“Insiders can cancel a plan when they do have material non-public information. This seems upside-down to me. It also may undermine investor confidence,” Gensler said. “In my view, canceling a plan may be as economically significant as carrying out an actual transaction,” he added. “Thus, I’ve asked staff to consider limitations on when and how plans can be canceled.”

The Journal asked Gensler about revelations that the SEC wrote to Tesla TSLA, -0.46% CEO Elon Musk complaining that he had violated a 2018 settlement to presubmit tweets that discuss production figures for his various companies. The letters, according to the Wall Street Journal, said that Musk continues to violate that provision of the settlement, though “the feud appears to have ended in a stalemate without further consequence to Tesla or Mr. Musk.”

Gensler declined to comment on Tesla specifically but noted that technological advances will always create tensions between the SEC and the companies it oversees. He pointed to the short squeezes in shares of Gamestop Corp. GME, 3.33% in January as an example.

“We’ve even seen this from the market even from the events in January that social and trading platforms came together and we saw volatility,” the chairman said. “I would say it’s important, and this happened as well in the 1990s, when the internet came along, that traditional fraud used to be in paper form or in speeches and then moved to the internet and if it moves to social media, still we are going to ensure the best that we can within our resources to tamp out fraud and manipulation.”

Gensler also spoke about possible new regulations in the area of special purpose acquisition companies, which have grown exponentially in recent years. “Its about disclosure,” he said, adding that new technology and new financial methods are in constant development, and the SEC must be vigilant to keep up with the times, though he declined to estimate when new regulations will be submitted.

“We look at the new technology and say, are investors being protected, are they getting the disclosures, is there sort of a level paying field with that disclosure…and are we insuring, the best we can, against fraud?” Gensler said.

Source: MarketWatch

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