SEC Law: Basics

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FAQs   

UPDATED! 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 companies are freezing exercises and ESPP purchases and are making modifications in grants by...

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 ...

What is insider trading? 

If you know material confidential information about a public company (your company or another company) and trade securities on that information or tip others about it before the information is publicly released, you have committed insider trading...

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...

UPDATED! 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...

If the stock I receive at exercise is not registered with the SEC and I cannot sell it, is the date for determining the taxes delayed? 

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

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 often 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...

UPDATED! Can the SEC take away stock option profits 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...

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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