As I blogged two weeks ago, the SEC announced enforcement actions against 34 companies and insiders (directors, officers and 10% owners) for failing to file timely Section 16(a) reports [Form 4] and Schedules 13D and 13G or disclose insiders’ violations in the Proxy Statement per Item 405. All but one settled, with cease-and-desist orders and monetary penalties ranging from $25,000 to $150,000. The enforcement actions came without warning, after more than a decade of little or no SEC enforcement in this area.  

Commentators are not interpreting this as a sea-change as to late filings where there is no pattern or flagrant violations, but it remains unclear what the SEC might do going forward. Therefore, nearly all public companies are carefully reviewing their compliance procedures and filing history (warning shameless business plug appears next), often with the help of outside counsel like us. Ideally, management will have initiated this review before board members ask about it.

In our experience, most companies have very effective procedures for stock awards to, and stock sales by (including on vesting or exercise), officers and directors. However, some companies that offer a company stock fund investment option under their 401(k) plan and non-qualified excess 401(k) plan could benefit from a check-up. Remember, among the transactions that an “insider” must report include:

  • Grants of stock options
  • Cashless exercise of stock options (and any sale of shares)
  • Grants of restricted stock or RSUs
  • Vesting (settlement) of restricted stock or RSUs
  • Transfers of shares from insider’s trust to a spouse’s trust
  • “Discretionary Transactions” under a 401(k) plan, ESOP, Non-qualified excess benefit plan, or stock purchase plan.