Offensive disclosure: How voluntary disclosure can increase returns from insider trading

Can voluntary disclosure be used to enhance insiders' insider-trading profits while providing legal cover? We investigate this question in the context of Rule 10b5-1 trading plans. Prior literature suggests that insiders reduce opportunities to profit from trades if their planned trades are disclosed. But disclosure might increase such opportunities because of an unappreciated characteristic of how rules of judicial procedure interact with SEC trading rules. Courts can only consider publicly available evidence from defendants at the motion-to-dismiss phase of litigation, and this practice can enhance legal protection for firms that disclose planned trades, especially those disclosing detailed information. This suggests that voluntary disclosure, which is conventionally thought to reduce information asymmetries, can create legal cover for opportunistic insider trading.