Series 14: 6.1.8.3.1. “On The Basis Of” = Aware Of (Absent A Pre-Existing Trading Plan)

6.1.8.3.1. “On the Basis of” = Aware Of (Absent a Pre-Existing Trading Plan)

Rule 10b5-1(b) defines “on the basis of” material, nonpublic information to mean that the person making the purchase or sale of the security must simply have been “aware” of the information when she engaged in the transaction. To prove a violation of 10b-5, the SEC does not need to show that the person who made the transaction did so because of the material, nonpublic information. Clearly, as states of mind go, “awareness” is fairly easy to establish.

However, Rule 10b5-1 also provides that, even if a person was “aware” of material, nonpublic information about a security at the time the person bought or sold the security, the transaction is not “on the basis of” such information if it is executed pursuant to a pre-existing trading plan. To qualify for this affirmative defense to insider trading liabi