I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. If you're like me, you worry every single time you file your taxes that you're going to accidentally break the law and therefore, accidentally go to jail. Today, we're going to talk about actual financial crimes, though, and one of the most serious ones: insider trading. Insider trading is the buying or selling of a publicly traded company's stock by someone who has private information about that stock. I'll give you an example of what that would look like. Say you're the CEO of a big company, let's call it the Money Rehab Company, and you tell your friend that a week from today, you're going to announce that you have become the most profitable company in the whole wide world. You blew NVIDIA out of the water. Warren Buffett is investing a gazillion dollars in you. Now, obviously, that news is going to make your stock price go up, and your bestie knows that. If they then buy your stock because this not yet public information, that is insider trading. An infamous example of insider trading is the case of Sam Waxel, the CEO of Imclon Systems.

In 2001, Waxel was told that the FDA would not approve Imclon's new cancer drug, and he told his friends and his family about this news before it went public so that they could sell their stock before the stock price dropped, which it obviously did. As soon as the news dropped that the cancer drug was not approved, Waxel was charged with insider trading and sentenced to over seven years in prison. Oh, and by the way, one of those friends that Waxel told, Martha Stewart. Yep, Stewart actually allegedly received this intel from her broker at Merrill Lynch, but also Sam Waxel had dated Martha Stewart's daughter, so maybe that had something to do with it. But in any case, Martha Stuart stole $230,000 in inklown shares a day before the FDA announcement came out. And this is the case that landed Martha Stuart in prison for five months. But let me blow your mind for a sec. Insider trading can actually be totally legal when conducted transparently and according with the rules set by the Securities and Exchange Commission or the SEC. However, it becomes illegal when it breaches the duty of trust and confidence while benefiting from undisclosed financial information.

Because think about it, there needs to be a legal way for the C-suite to sell their own stock. Typically, when you're the CEO of a publicly traded company, you get a big old compensation package that involves equity in the company you're CEOing. But as You know, money rehabbers, you can't technically make money from a stock until you sell it. So that presents a problem. C-suite execs shouldn't be able to profit from the companies that they're pouring their hearts and souls into, but they're privy to all the information about the company, the good and the bad. And if they use that information to buy or sell the stock at a profitable time, well, that is not fair. But there's a solution for this. It's called the Stay Out of Jail Plan. Just kidding. It's It's called the 10B5.1 plan, because everything in finance has to be some alphabet soup. Okay, a 10B5.1 plan is essentially a trading contract for company insiders that gives them the ability to buy or sell shares at predetermined times in a way that's compliant with the law. The predetermined times element is what's key here. These plans are designed to prevent illegal insider trading by allowing these transactions to happen in a way that does not allow the insider to have any control over the timing of buys or sells, and therefore, eliminating creating the value of all the top secret information that they have.

10b5.1 plans provide a defense against potential legal accusations by predetermining the trades well before they happen, regardless of what good or bad information about the company comes to light. I'll give you two examples. In late February, Jeff Bezos sold 14 million shares of his company valued at approximately $2.4 billion. That was in accordance with his 10B5.1 trading plan. His plan stipulates that he'll sell up to 50 million shares by January 31st of 2025. Bezos, of course, stepped down as the CEO of Amazon in 2021, but he still serves as Amazon's executive chair and remains its largest shareholder with more than 938 million shares, even after this most recent sale. And even after Bezos completes the sale of the full 50 million shares, he's still going to be the largest shareholder. So cool for Jeff. Similarly, Sheryl Sandberg, the long-standing COO at Facebook, now Meta, has made over $2 billion from selling meta shares over the last decade, and all of those sales were managed through her 10B5.1 plan. Interestingly, she sold 92 % of her shares, which is a pretty significant amount of stock to shed. She said her rationale was wanting to free up money for diversification and philanthropy.

And I am all for diversification and philanthropy, but I probably wouldn't have given up that much meta-stock, but to each her own. These are just two examples, but every C-suite exec at a public company has to do some form of this through a 10 B5.1 plan. But this doesn't just matter to C-suite execs. It also matters for us, the investors. Which brings me to today's tip you can take straight to the bank. Investors, you might think it's a bad sign if you see someone high up in a company selling a bunch of shares, and you might think to yourself, They must know something I don't know, so I'm going to sell my stock, too. But no, these transactions aren't necessarily signaling a lack of faith in the company. They could be the result of careful planning and are often very personal. So don't use legal insider trading as an indication for the company's real stock value. Use your money rehab analysis. And if you're a newbie to this show, I've linked some helpful stock analysis episodes in the show notes. Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoy.

Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money moneyrehab@moneynewsnetwork. Com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.