Key points
- In 2024, Ontrak's former CEO Terren Peizer became the first person ever criminally convicted for misusing a Rule 10b5-1 trading plan, after setting one up while he already knew his biggest customer was leaving.
- A 2022 Wall Street Journal analysis of 75,000 insider trades found that insiders who sold within 60 days of adopting a plan made $500 million more, collectively, than if they'd waited three months.
- That's part of why the SEC now makes officers and directors wait 90 to 120 days between signing a 10b5-1 plan and its first trade.
- AIStockWire's insider tracker labels 10b5-1 trades "Routine" and trades with no such plan "Own call," the stronger signal of the two.
I keep a loose mental list of stock sales that looked too perfectly timed to be luck. Almost every name on it turns out to have a boring explanation, a 10b5-1 plan set up long before anyone could have known what was coming. Only one name on that list didn't have a boring explanation at all.
Terren Peizer ran Ontrak, a healthcare company, and signed a plan the same day he learned his biggest customer was leaving, then started selling the very next trading day. The timing alone spared him something like $12.5 million he would have otherwise lost. That 2024 conviction was a first. No one had ever been successfully prosecuted over a 10b5-1 plan before him.
Most 10b5-1 plans never go anywhere near a courtroom. His case just makes it obvious what the rule is supposed to prevent.
What a 10b5-1 plan is supposed to do
Here's the version that isn't a crime. An insider agrees in writing with a broker to trade a set number of shares on a schedule decided in advance, at a point when they don't know anything unusual about the company. Once it's signed, the broker just follows the schedule. Stock up, stock down, bad news that broke after the ink dried, none of it changes anything. The schedule locked in the trade before anyone, including the insider, knew what was coming.
Why the rule got a lot stricter in 2022
Peizer set up his plans in 2021, a year before the Wall Street Journal published the analysis that actually got regulators moving. That 2022 review looked at 75,000 trades made under these plans and found insiders who sold within 60 days of signing one came out about $500 million ahead, collectively, of insiders who waited three months. That's a hard pattern to call coincidence.
The SEC responded with real limits, effective 2023:
- Officers and directors wait 90 days after signing, or two business days after the company's next earnings release, whichever is later, capped at 120 days.
- Everyone else at the company waits 30 days.
- Plans have to include a written certification that they were adopted in good faith.
- Overlapping plans are restricted.
Peizer's plans predate all of it. Under today's rule, the cooling-off period alone would have stopped him from trading the next day, the way he actually did.
How to tell a scheduled sale from a real one
Every insider trade shows up on a Form 4, usually within two business days. I've written about how to read one of those before, and the detail that matters most here is a small checkbox marking whether the trade came out of a 10b5-1 plan. Check the box, and the trade was scheduled long ago. No box, and it was a real-time call.
AIStockWire's insider tracker shows that distinction directly. Trades tied to a 10b5-1 plan, or to an automatic program like an employee stock purchase plan, get labeled "Routine." A trade with no such plan behind it gets labeled "Own call," and that one is worth paying closer attention to, since it reflects a decision made that day, not a schedule set months earlier.
Does the plan actually protect against insider trading
Peizer answers that better than I can explain it in the abstract. A plan is only a defense against one specific claim, that a trade was based on information the insider had at the moment of the trade. It says nothing about what the insider knew when they signed the plan in the first place, and prosecutors can still go after that if they can prove it, which is exactly what happened to him despite the paperwork being technically in order.
A trade that came out of a plan set up months earlier, with a real waiting period behind it, is still a genuinely different thing from a trade someone chose to make that morning. It just isn't proof by itself. The plan is only as clean as the moment it was signed.
