In an article which could reignite the debate over regulation and disclosure of corporate events and executive stock sales, a recent study by professors from Columbia and Harvard law schools, led by former Treasury official and now Columbia Law professor Robert Jackson, concluded there was a link between insider trades in company stock made during the four-day gap between the time a significant company event occurred and when it was reported in a Form 8-K filing with the SEC. The study found that executives engaging in such trades make average returns of 42 basis points higher than the market generally. More importantly, it found that executives who purchase company stock in the open market in the days before "an important company event" beat the market by an average of 1.95%. The study examined nearly 43,000 insider purchases and sales between 2004 and 2014 which occurred within the four business days companies have to disclose major developments. Interestingly, the study excluded any filings which were made pursuant to 10b5-1 plans as those plans create pre-established sales arrangements for executives. The researchers concluded that "in light of the potential concerns raised by these findings,lawmakers should reconsider the effects of information-forcing rules such as those governing Form 8-K on the incidence and profitability of trading by insiders."
With that invitation, the Wall Street Journal reported that the study caught the attention of House Financial Services Committee member Rep. Carolyn Maloney (D-NY) that reported that Rep. Maloney's office said she was considering introducing legislation to address the issue, including an approach which would prevent executives from trading in their own company's stock ahead of an 8-K filing. However, the article quoted former SEC enforcement official Bradley Bondi as saying that enforcement of existing law would be the best approach to address compliance failures and that shortening the time period for filing 8-K's could lead to inaccurate disclosures.