A pension-fund group once again urged the Securities and Exchange Commission to update rules regarding executive insider trading this week, citing a series of Wall Street Journal articles published since December that have highlighted instances of C-suites benefiting from trades of company stock.

The allegations that the SEC isn’t doing enough to stem insider trading among corporate executives privy to sensitive data comes as newly-appointed Mary Jo White and her staff just begin settling into their new posts.

It also comes as the SEC continues to get more aggressive with deploying resources to stop all kinds of insider trading, including the high-profile case of Rajat Gupta, the Goldman Sachs (GS) board member who was convicted last June of leaking confidential information to a business associate who profited from non-public information about the bank.

In a letter sent to SEC Chairman Mary Jo White and the SEC’s four active commissioners on Thursday, the Council of Institutional Investors [CII], a non-profit group representing some $3 trillion in employee benefits plans, reiterated concerns first arisen in a December letter regarding the misuse of Rule 10b5-1.

The rule, passed by the SEC in 2000, gives executives a way to execute trades, requiring the C-suite of publicly-traded corporations to set up a trading plan “in good faith” for selling stocks they own so that they can sell a predetermined number of shares at a specific time. It requires such a plan to be set up prior to the receipt of any material non-public information.

“Evidence continues to mount that many companies and company insiders have adopted practices that are inconsistent with the spirit, if not the letter, of Rule 10b5-1,” CII General Counsel Jeff Mahoney said in letter, citing an April Wall Street Journal article.

The Journal analyzed trading activity of more than 20,000 executives since 2004 who traded their own company’s stock during the week before their companies reported big news. It found that 1,418 executives either recorded average stock gains, or avoided 10% in losses, within a week after their trades. The authors conclude in the report that despite the regulatory framework protecting insider trade, executives do “suspiciously well on their trades.”

While the SEC in the article calls that bundle of trades an “exotic permutation,” CII said it sees them as “yet another example of the breadth of current uses” of the rule that appear “inherently unfair to CII members and other market participants.”

The SEC declined to comment on the letter. 

Pointing to the stock-option backdating scandal that emerged through a Journal article in 2006, Tom Gorman, a partner of Dorsey & Whitney who specializes in insider trading, said that while the Journal articles have not established a significant problem, there is “certainly a strong indication.”

“If executives are using the plans to conceal the fact that they are trading on inside information then they are subverting the purpose of the rule,” Gorman notes. “That would be significant.”

Illicit Trading Artillery

Yet, when it comes to insider trading, securities regulators have upped the ante.

The SEC and other federal regulators including the Department of Justice have cracked down on insider trading in recent years. In 2012 the SEC filed 58 insider trading actions, and the DOJ brought criminal charges involving insider trading against 31 individuals, as they continued to invest heavily in resources aimed at enforcement, according to a report by Morrison Foerster.

“As a general matter, trading on the basis of material non-public information is illegal and our records show we are able to detect and we do,” an SEC spokesman told FOX Business.

Yet, the CII is calling for “a more effective … long-term strategy” to address what it called a “number of abuses” of Rule 10b5-1. It is important to note that CII has been the only investor group to publicly bring criticisms regarding this rule to securities regulators.

The CII urged the SEC to “consider using interpretive guidance or amendment to Rule 10b5-1” that would require the plans to adopt certain protocols such as adopting Rule 10b5-1 only during permitted buy and sell trading windows typically open after the announcement of the company’s financial results. It also urges the SEC to forbid executives from adopting multiple, overlapping trading plans, while requiring companies and insiders to disclose of 10b5-1 program adoptions as well as amendments, terminations and transactions.

“It’s not really practical,” said a source familiar with securities regulation who asked not to be named, pointing to the massive number of executives that fall under Rule 10b5-1.

Simply regulating all of them at all times would not be possible on top of the SEC’s mountain of other pressing issues, the person notes, one reason why the SEC has set up rules like 10b5-1 and used algorithms to generate red flags.

Rule 10b5-1 was adopted after years of failed insider trading cases as the SEC found it was unable to prove with a shadow of doubt that the suspect acted on non-public information. The eventual adoption of the rule worked several fold, helping the SEC keep track of blatant misuse of insider information by executives while enabling the C-suite to check off a list of obligations to ensure they stay in compliance.

At the same time, it infuses a sense of fairness into the market, giving retail investors the extra assurance that the trades made by top-level employees deeply involved with a company’s operations aren’t getting too unfair an advantage.

New Chair, New Complaints

The initial call by the CII to revamp executive trading laws came just weeks after last year’s election, with the follow-up letter being sent almost a month to the date after new SEC Chairman White was sworn in.

“Mary Jo White is a new chairman, there are a lot of constituents in the marketplace who are trying to get on the chairman’s radar -- that’s what this is,” said Michael Robinson, a former SEC spokesperson who served under Chairman Harvey Pitt just after the adoption of Rule 10b5-1.

“Every chairman comes in with his or her own staff and agenda in a very good way but if all of a sudden you see an issue popping up in The Wall Street Journal and a congressman starts asking you questions about it. You are going to say ‘I better focus on that,’ that’s just the way it works,” Robinson said, who now serves as senior vice president of Levick Strategic Communications and chairs the firm’s Corporate and Public Affairs Practice Group.

Of course, regulations and rules can always be altered and improved, and Robinson said that could certainly be the case with Rule 10b5-1. 

CII’s call to not allow executives to make multiple, overlapping trades, for example, could be a solid consideration, as too many such trades could overwhelm the algorithms used by the SEC and exchanges to identify red flags.   

However, Robinson was also quick to highlight the rule's benefits, such as instilling a level of risk among a community of privileged executives who have a large portion of their wealth tied up in their company’s stock.

“Every time you buy and sell you have some level of risk – what this does is say to a CEO you have to get some risk too,” Robinson said. “The point of this policy ultimately is to say no one gets an unfair shot.”

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