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This article was published on April 5, 2010

Facebook Restricts Employee Stock Sales To Avoid Insider Trading

Facebook Restricts Employee Stock Sales To Avoid Insider Trading
Michael Klurfeld
Story by

Michael Klurfeld

Michael Klurfeld is a Chicago-based musician and technologist specializing in legal happenings and public policy. You can find him on Twitte Michael Klurfeld is a Chicago-based musician and technologist specializing in legal happenings and public policy. You can find him on Twitter here, or send him an email here.

Facebook has placed new regulations on how its employees can sell their stock in the company to third parties to avoid violating American laws.

While Facebook is still pre-IPO, employees with stock options are allowed to privately sell their shares to buyers. But this is a tricky practice as the employees do know more about the company than the buyer could. In these cases, the employees would be considered as having violated insider trading laws, perhaps.

The Security and Exchange Commission does not allow two parties to trade stock if both do not have access to the same information. What makes this especially complicated is that if you have some contract with Facebook, odds are that it does not let you disclose certain details.

So even if you disclose the information in question, you might end up in legal trouble with Facebook for breach of contract.

These new rules are only applicable to current Facebook employees. Former Facebook employees are free to sell their stock as directed under the old rules, even though they might run afoul insider trading laws.