When the Gift of a Security Can Become an Insider Trading Charge

Before the SEC’s recent pronouncement on insider trading liability for gifts, it was an open question whether liability existed.

Some practitioners took the position that because a gift is neither a purchase nor a sale, an insider could gift securities at any time—even when aware of material nonpublic information—without incurring insider trading liability. This position is clearly at odds with the SEC’s recently stated position.

The SEC has now clarified that a Rule 10b5-1 plan may be used for gifts of securities. This includes a gift that might otherwise subject the donor to insider trading liability because at the time of the gift the donor had material nonpublic information and knew?or should have known?that the recipient would sell the securities before that information was publicly disclosed.

Source: When the Gift of a Security Can Become an Insider Trading Charge