SEC Law: Basics

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FAQs

UPDATED! What is insider trading? Do you have to be an "insider" or executive to commit it?

Insider trading is illegal. It occurs when someone...

Are sales of shares by executives and directors of a public company subject to any securities-law restrictions?

Yes. Stock held by an "affiliate" (e.g. any director or executive officer) of a public company generally must be ...

UPDATED! My company's stock is now essentially worthless because of securities fraud by senior executives. Can I claim a casualty or theft loss on my tax return?

A casualty or theft loss would allow you to deduct the lost amount against your ordinary income, subject to some limits. However, Treasury regulations and court rulings would probably stand in your way. Nevertheless, what you can do is...

UPDATED! Can the SEC, the Treasury, or my company take away stock option gains, restricted stock, and performance shares after accounting fraud has occurred?

The SEC has gone after senior executives' option profits from the exercise and sale of company stock at prices that were inflated by financial fraud...

NEW! Are public resources available for doing research on a company's stock compensation practices, the grants it is making, and the holdings of its executives?

At least for senior executives, you can find useful information. You can either go to the...

What are Forms 3, 4, and 5? When are they filed with the SEC?

Senior executives, directors, and large-block shareholders need to make ongoing filings about their company stock holdings to report any changes. The initial report to be filed by a Section 16 reporting person is Form 3. It must be filed with the SEC within...

What are the requirements that affiliates (i.e., executives or directors) must follow to sell their stock to the public under Rule 144?

This is the most common way senior managers and directors sell their stock. There are five basic requirements of a Rule 144 sale. These apply to the resale of stock not registered with the SEC (i.e., restricted securities) and even to...

What are "blackout periods" and "window periods"?

Blackout periods are times when you are prohibited from trading your company's securities, and window periods are times when you are allowed to trade. Some companies also prohibit...

Do blackout or lockdown periods exist for stock plans? Are there periods during which you can't exercise options or buy stock in an ESPP?

The popular media sometimes confuse the term "blackout" with "lockdown." For stock plans, these terms apply to different...

Are senior executives and directors banned from trading company stock during a 401(k) blackout period?

Starting on January 26, 2003, during any 401(k) blackout period directors and executive officers...

NEW! If I gift my company stock to a grantor-retained annuity trust (GRAT), do the securities laws still apply?

When you are the trustee of a grantor-retained annuity trust (GRAT), and the beneficiary during the annuity payment period, the securities law prohibition on insider trading...

If the stock I receive at exercise, at vesting, or outright from the company for services is not registered with the SEC and I cannot immediately sell it, is the date for determining the taxes delayed?

As the IRS confirmed in Revenue Ruling 2005-48, the tax-measurement date...

My company backdated more stock options than just those of the senior executives. How does this affect employees like me and the taxation of my stock grants?

At a minimum, do not expect any new stock option grants with an exercise price lower than the market price on the grant date. The tax treatment varies by type of grant. Some of the companies involved in the controversial backdating of stock options restricted employees from...

I am an affiliate. I plan to exercise my options and sell the shares. What forms do I file with the SEC, and when?

Form 144 must be filed on or before the sale date. Form 4 must be filed...

If I am an "affiliate" of my company, how difficult is it to register my stock for resale to the public?

Except at times when a number of affiliates will simultaneously sell a portion of their stock, a public company is unlikely to register an affiliate's stock for resale...

Do federal securities laws impose any reporting requirements on a public company's officers, directors, and significant stockholders?

Yes. Section 16(a) of the Securities Exchange Act of 1934 provides that every person who is a director or executive officer (or a 10% beneficial owner) of a public company must file periodic reports of stock ownership with the SEC...

Are there special public-company notice requirements for senior executives or directors before they exercise and sell?

Yes. If you are an officer or director of a public company, your company probably has a pre-clearance policy...

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