A small item in today’s financial news raises a point that has bugged me for a long time. The news (as reported by the Associated Press): “Symantec Chief Executive John Wendell Thompson Exercises Options for 50,000 Shares.” Before I go any further, I want to emphasize that I have no beef with Thompson, whom I respect and have interviewed on a number of occasions as far back as his IBM days, and am not implying t A small item in today’s financial news raises a point that has bugged me for a long time. The news (as reported by the Associated Press): “Symantec Chief Executive John Wendell Thompson Exercises Options for 50,000 Shares.”Before I go any further, I want to emphasize that I have no beef with Thompson, whom I respect and have interviewed on a number of occasions as far back as his IBM days, and am not implying that there is anything in his recent trade that isn’t kosher. What do I want to point out is a phrase you’ll see over and over again when a technology insider sells shares or exercises options: “The stock sale was conducted under a prearranged 10b5-1 trading plan which allows a company insider to set up a program in advance for such transactions and proceed with them even if he or she comes into possession of material non-public information.” Some of what I’m going to say is a bit technical, but bear with me. Investors and employees of publicly held technology companies are missing big clues to what’s going on behind the scenes. A bit of history is in order: Seven years ago, the Securities and Exchange Commission adopted Rule 10b5-1. Despite its prosaic title, the rule appeared to markedly change the landscape for insiders. Previously, courts in certain jurisdictions would not levy judgment against an insider unless it could be proved that he or she actually used inside information as a basis to trade. Now, merely possessing information at the time a trade is planned is in violation.The above makes it sound like the SEC substantially toughened insider trading rules that exist to make sure the market constitutes “a level playing field,” in which no investor should have an undue information advantage. But the truth isn’t so simple. The rule allows execs to set up planned schedules of trades, and execute those trades even if they then come into possession of significant new information that the public does not receive. And when most financial reporters, and even analysts, see the 105b disclosure, they tune out. But maybe they shouldn’t. A study by Alan D. Jagolinzer of Stanford’s Graduate School of Business concludes that 10b5-1 sales timing may not be as random as many might suspect. “If the rule was intended to allow only random trades for the purpose of diversification, it doesn’t appear to be doing that,” he told me.Simply put, it’s hard to know if insider trades are really random. Jagolinzer, an assistant professor of accounting, looked at five years of trading activity, analyzing approximately 117,000 transactions, and found that, on average, insider trades conducted under 10b5-1 outperformed the market by about 6 percent six months after the trades were executed. This association, he said, was statistically very strong, suggesting that, on average, trades appeared more strategically timed than random.I spoke to Jagolinzer at some length a while ago, and he emphasized that he is not saying that these trades violate the law. Only that the evidence suggests that they may not be so random. This may seem nitpicky, but here’s why you should care, whether you are an investor or an employee of a public technology company: Insider trading, planned or not, can be an important clue that something is up. Just because the press is quick to assume that 10b5-1 trades have no meaning, nothing stops you from being more skeptical. Think hard anytime you see news of insider trading and think about what it might mean to your job or your investments. I welcome your comments, tips and ideas. Write me at: bill.snyder@sbcglobal.net. Technology Industry