Van Hollen Presses SEC to Require Guardrails on Executive Stock Sales, Pointing to Recent Pfizer and Moderna Cash Out

Today, U.S. Senator Chris Van Hollen (D-Md.) pressed U.S. Securities and Exchange Commission Chairman Jay Clayton on the need to create stronger guardrails against corporate executives’ potential abuse of insider information to set up stock sales, pointing to recently scheduled sales by pharmaceutical companies Pfizer and Moderna. As the Senator noted, while legal, these sales undermine public confidence and allow corporate executives to potentially misuse information unavailable to the public for their own significant financial gain. In his response, Chairman Clayton agreed with Senator Van Hollen on the need for SEC rulemaking around this process. Van Hollen went on to point to bipartisan legislation he has introduced with Senator Deb Fischer (R-Neb.) that would encourage the SEC to act. This bill passed the House on a bipartisan basis in 2019.

A transcript of the exchange is available below and video is available here.

SENATOR CHRIS VAN HOLLEN (D-Md.): I want to talk about a couple areas where I think we agree, but I have been frustrated that we haven’t made more progress recently – and maybe tee up some action items for all of us, including the SEC going forward. These are all designed to do what I think we all want, which is to provide accountability for insiders and corporate executives and transparency for investors. 

On the issue of accountability and making sure that insiders are not exploiting unfairly information they have – you mentioned already the SEC Rule 10b5-1, which allows executives an affirmative defense to insider trading if they essentially provide a schedule for their stock sales. But we’ve seen a number of incidences recently, which at the very least, I think, undermine public perception that people are not using insider information. Most recently was the Pfizer time stock – the CEO of Pfizer, as you know, the stock sale occurred on the very same day that they announced their breakthrough on a COVID-19 vaccine. That stock sale had been scheduled in August when the CEO changed their plan – their scheduled sales plan. And I heard you mention earlier, you know, putting guardrails up against this –  maybe 3 months or 6 months. I really think we need to act. 

We also saw a similar situation with Moderna, where after announcing their progress towards a COVID-19 vaccine, their stock sale – their stock price increased and then certain Moderna executives changed their 10b5-1 plans, and as a result, made an additional $4.8 million in profit.

Again, this is currently legal, but I do believe it undermines public confidence in the system. And I want to know if you agree and whether you would encourage us to work to put up tighter guardrails against potential abuse and certainly a public perception that undermines that confidence.

JAY CLAYTON, CHAIRMAN OF THE U.S. SECURITIES AND EXCHANGE COMMISSION: So, I want to be very clear, I’m not commenting on any particular case, but as a general matter, I agree. And I do think that how we craft it, there are people that have different views – but let me just say it this way, for senior executives officers using 10b5-1 plans to sell stock, I do believe in a cooling-off period from the time the plan is put in place or it’s materially changed until the first transaction is appropriate. Whether that’s four months so that you cover a full quarter, or it’s six months, whatever – I can make arguments for either. I do think we should do it.

VAN HOLLEN: I appreciate that. Well, Senator Fischer and I have a bipartisan bill that we’ve introduced to encourage the SEC to look at this and do a rulemaking. It passed on a bipartisan basis in the House. I’m going to ask Chairman Crapo if we can look at it, and maybe even pass it before the end of this year.