Is Exercising Employee Stock Options Illegal Insider Trading? Maybe

, New York Law Journal


Daniel Nathan and Brian Neil Hoffman of Morrison & Foerster write: Stock option exercises may create additional risks of violating the securities laws depending upon how they are exercised. Through careful advance planning and sound legal advice, stock options holders can minimize their risks of committing insider trading and reap the benefits of their stock options.

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What's being said

  • John Olagues

    Dear Daniel:

    I read your article on "Is Exercising Employee Stock Options Illegal Insider Trading ? Maybe" and would like to make a comment.

    No person has ever been charged with violating insider trading laws by exercising ESOs, without selling the stock received or exchange traded calls and none will ever be charged regardless of the settlement method. If you are a holder of ESOs or exchange traded calls, and have inside information about an expected rise in the stock, you can never improve your situation by exercising early. And the only reason someone would do so is that he may be able to change an ordinary income gain into a capital gain, if one starts with the ESOs.

    Of course one could dream up a situation where the ESOs or calls are to expire on Friday and are out of the money and the announcement is expected to come or Saturday and he exercises on Friday. But the likely-hood of that occurring is perhaps one in a million.

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