How can executives legally sell stock when they know confidential company news? That question became much more urgent in June 2025 when the Department of Justice secured its first criminal conviction for insider trading based solely on Rule 10b5-1 trading plans.
The case involved Terren Scott Peizer, former Executive Chairman of Ontrak, who was sentenced to 14 months in prison for setting up prearranged stock sales while holding material nonpublic information. This high-profile conviction is a wake-up call for HR professionals. Rule 10b5-1 trading plans, once seen as a bulletproof shield, are now under scrutiny. Understanding the risks and responsibilities tied to these plans is now part of your job.
What Are Rule 10b5-1 Trading Plans?
Rule 10b5-1 trading plans are SEC-sanctioned plans that allow insiders—like executives and directors—to sell stock on a prearranged schedule, even if they later come into possession of insider information. The catch? They must set up the plan when they’re “clean”—meaning no access to material nonpublic information.
These plans were designed to help executives avoid the appearance or accusation of insider trading. Once in place, the trading schedule is automatic and must be followed unless canceled—something that, if done repeatedly or suspiciously, can also raise red flags.
For HR, especially those involved in executive compensation, these plans aren’t just legal tools—they’re integral parts of benefits administration, compliance oversight, and risk management.
No Peeking: Why Timing Is Everything
Imagine playing hide-and-seek with someone who peeks while counting. Now apply that to the stock market. Executives who peek—use confidential information for trading—violate the spirit and letter of insider trading laws.
Rule 10b5-1 plans act like blindfolds. Executives must set up the plan when they can’t “see” what’s coming, and then let the plan execute trades automatically. If they peek—by setting or adjusting plans after learning something big—they’re at risk.
⚠️ Real-World Example: The Peizer Conviction
In May 2021, Terren Peizer discovered that a major client—representing over 50% of Ontrak’s revenue—was about to cancel its contract. Instead of disclosing this to investors or his board, Peizer:
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Set up two Rule 10b5-1 trading plans in June and July 2021
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Sold shares under those plans
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Avoided $12.5 million in losses
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Watched Ontrak’s stock plunge 44% when the news went public in August 2021
This violated the foundational rule: Peizer wasn’t “clean” when he set up the plan. The DOJ proved he timed it with intent, breaking the trust Rule 10b5-1 relies on.
Why HR Professionals Must Pay Attention
1. Executive Compensation Is Increasingly Complex
Rule 10b5-1 trading plans are standard in executive pay packages. If you administer or advise on these plans, compliance is your business. A misstep could expose your organization—and you—to legal and reputational risk.
2. HR Is on the Front Line of Compliance
Gone are the days when legal departments handled all compliance. HR professionals must now understand securities laws that intersect with pay, equity, and executive behavior.
3. The “Good Faith” Requirement Is Real
The SEC is enforcing the spirit of the rule—plans must be created in good faith. HR must document the timing, rationale, and process used when these plans are established.
4. Career Growth Requires Risk Awareness
Knowing how to spot compliance gaps in executive stock sales can position you for higher-level HR roles. Understanding Rule 10b5-1 trading plans gives you credibility with finance, legal, and leadership teams.
How Rule 10b5-1 Plans Work: HR’s Step-by-Step Role
✅ Step 1: Plan Establishment
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Created when the executive has no material nonpublic information
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Includes preset dates, amounts, and pricing for trades
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Reviewed by legal and documented by HR
HR’s Role: Ensure timing records, cross-functional review, and secure storage of documentation
✅ Step 2: Plan Execution
HR’s Role: Monitor trade dates, notify legal of red flags, confirm compliance
✅ Step 3: Compliance Reviews
HR’s Role: Partner with legal for quarterly audits; escalate any inconsistencies
The New Enforcement Era: What Peizer’s Conviction Means
Peizer’s conviction is precedent-setting. For decades, prosecutors hesitated to go after executives using Rule 10b5-1 plans. That’s no longer true. The bar has shifted—and companies of all sizes are on notice.
Your HR team must treat 10b5-1 plans as compliance-controlled tools, not just compensation add-ons. This includes establishing:
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Clear “cooling-off periods”
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Executive training on plan rules
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Internal escalation protocols for any suspicious timing
🚨 Cool Stat: Rule 10b5-1 Plans Cover 75% of Insider Sales
That’s right—three out of four insider stock sales use these plans. That makes Peizer’s abuse even more shocking. It also means HR needs systems in place to make sure that abuse doesn’t happen on your watch.
Quick Implementation Checklist for HR Teams
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Identify all current 10b5-1 plan participants
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Confirm documented plan creation dates and conditions
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Align plan approval with legal counsel
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Create a cross-functional review process for future plans
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Monitor trade activity against material disclosures
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Review training resources with executives
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Schedule quarterly audits of plan activity
Key Takeaways
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Rule 10b5-1 trading plans are essential but risky tools for executive stock sales
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HR professionals must now understand and document compliance rigorously
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The Peizer case is a landmark example of what happens when these plans are abused
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Effective HR oversight includes audits, training, and plan timing documentation
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Mastering Rule 10b5-1 knowledge is a career differentiator in modern HR
Ready to Deepen Your Executive Compensation Expertise?
This is more than just a compliance issue—it’s a career opportunity. Understanding Rule 10b5-1 trading plans now puts you ahead of your peers in HR. Bring this up in your next 1:1. Ask your mentor: “How does our company manage 10b5-1 plans, and what’s HR’s role in compliance?”
For deeper insights, check out our CompAware Program and stay ahead of regulatory shifts that could impact your executive pay strategy.