Amidst the flurry of Securities and Exchange Commission (SEC) cases involving improper employee stock option backdating several years ago, many commentators opined on the potential insider trading implications of companies' issuance of stock options to officers and directors. As a result, we all now know that "spring loading" and "bullet dodging" raise securities law questions, not simply a dizzying array of mechanical mayhem. Yet the literature is surprisingly scant concerning the potential insider trading implications of an insider exercising her stock options. The time is ripe for this discussion, particularly since the SEC and Department of Justice have ambitiously prioritized insider trading enforcement of late.

Picture this: As a valued contributor to a public company, you received stock option grants over several years. You and your company have done well, and the stock price is now higher than the grant price. A bit of immediate profit sure looks attractive, particularly with your daughter bound for that pricey private university. Yet when you spoke with the company's general counsel, he confidentially informed you that the company will soon announce a massive restatement of its financial statements, likely causing the stock price to precipitously decline. The GC told you that he instituted a blackout period prohibiting transactions in the company's stock. Can you nevertheless exercise your options and sell the resulting shares?

Originally published in New York Law Journal on December 5, 2013.