Human Capital & Careers

RIM Insiders Automate Sales of Company Stock

They’re the latest to employ a Rule 10b5-1 plan, which lets them dump stock despite possessing insider information.
Stephen TaubNovember 26, 2007

Insiders at Research In Motion are the latest to adopt an automatic stock-selling program.

Officially known as Rule 10b5-1 plans in the United States, they allow insiders to sell, donate, or transfer shares at pre-set prices, dates, and amounts, regardless of whether they are in possession of material non-public information.

Once one of these plans is established — the Waterloo, Ontario company also adopted a similar Canadian plan — the insider is not permitted to exercise any further discretion or influence over how sales will occur.

Shares of RIM, the maker of the Blackberry, have been among the best performers this year, more than tripling at one point before slipping back amid the recent global stock market correction.

RIM noted a number of reasons insiders would want to unload their shares. For one, many of the company’s officers and employees have a substantial portion of their personal net worth tied up in RIM stock. A number of officers have been subject to lengthy restrictions on their ability to trade their shares because of trading blackouts imposed under the company’s insider trading policy and the management cease trade order (MCTO) issued by the Ontario Securities Commission in October 2006 at the company’s request.

Other reasons insiders sell their stock include making charitable donations, tax and estate planning, retirement planning, the purchase of a home, the payment of university tuition for a child, the establishment of a trust, the balancing of assets, and diversification of investments.

Rule 10b5-1 plans have been available since October 23, 2000. But they don’t completely shield all insiders from regulatory scrutiny. For example, earlier this year, the SEC launched an informal probe into stock sales by Countrywide Financial CEO Angelo Mozilo, who sold roughly $130 million in Countrywide stock through a 10b5-1 plan, according to The Wall Street Journal.

Back in May, RIM restated results downward for 2005 and 2006 by a total of $248.2 million to correct options-related errors.