SEC Law: Basics

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FAQs

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

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

What is restricted stock? Does it differ from restricted securities?

Don't confuse restricted securities and restricted stock. They are very different...

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 ...

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...

What is the SEC?

The SEC is, in full, the Securities and Exchange Commission. The SEC is the federal agency...

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

In enforcement actions, the SEC has gone after option or stock profits gained by senior executives at prices that were inflated by financial fraud. Recent legislation, such as the Dodd-Frank Act, makes this type of enforcement action even more likely...

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 is an affiliate, and why does affiliate status affect the ability to resell company stock?

"Affiliate" is a term used in the securities laws to refer to a person in a relationship of control with a company. "Control" denotes the power to direct the management or policies of the company in some way, and this is generally means...

What are the rules for resales of restricted securities? What requirements must affiliates (e.g. executives and directors) follow to sell their stock to the public under Rule 144?

This is the most common way to resell restricted securities not registered with the SEC, and the most common way for senior managers and directors to sell their stock. There are five core requirements of a Rule 144 sale, which include...

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?

During any 401(k) blackout period, directors and executive officers...

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...

Is the date for determining taxes delayed if the stock I receive is not registered with the SEC and I cannot immediately sell it?

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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