Is CEO Dumping Stock? Check SEC Online
story.news.yahoo.com
Sun Jun 15, 4:03 PM ET
By Peter Ramjug
WASHINGTON (Reuters) - Investors will soon be able to track the same shares that Bill Gates (news - web sites), Martha Stewart (news - web sites) and other corporate honchos buy or sell under a new system putting insider-trading information on the Web sooner and for free.
The U.S. Securities and Exchange Commission (news - web sites) quietly passed a rule earlier this year doing away with paper versions of forms that disclose stock purchases and sales by officers, directors or anyone with a stake of 10 percent or more.
"It's been known for decades that if you watch carefully what the insiders of a company are doing, you learn something interesting," said Georgetown University law professor Donald Langevoort, a former SEC special counsel.
Before the new rule, some paper filings arrived at SEC headquarters via snail mail, often well after an insider transaction occurred. The new rule kicks in at the end of June, when paper filings known as Forms 3,4 & 5 will no longer be accepted.
The SEC typically gets about 250,000 forms 3, 4 & 5 a year. It made electronic filing voluntary in 1995, but only 6 percent of insiders were doing it, said Peter Romeo, a securities lawyer who specializes in executive stock transactions.
Under the Sarbanes-Oxley corporate reform law, passed last summer amid a series of jaw-dropping accounting scandals, Congress ordered the SEC to act, but the agency has long recognized the importance of stock ownership filings. The problem was making them available to investors quickly.
Shareholders in Enron Corp. (Other OTC:ENRNQ - news) were left in the dark when insiders at the energy trader were quietly selling their shares while making rosy statements about the company's future.
"While you had people at Enron saying this is a great stock, you unfortunately had the same people selling their own stock, and people felt they'd been misled when they couldn't tell that the same people recommending the stock were actually themselves selling it," former SEC chairman Harvey Pitt told Reuters.
FILING DEADLINE EXTENDED
A few companies already provide insider filings on the Internet, sometimes for a fee. The new SEC rule, however, mandates the electronic filing of forms 3, 4 & 5 to the EDGAR database (http://www.sec.gov).
The purchases and sales have to be reported within two days after they occur. While the disclosure is not instantaneous, insiders previously had up to 40 days to report such trades, "which made the information stale," said Georgetown's Langevoort. "I think two days is a substantial improvement."
Companies whose executives have changed their ownership levels also have to post the forms 3, 4 & 5 on their respective Web sites.
The filing deadline for other forms on EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) is 5:30 p.m. EDT and they are deemed to be filed that day.
The SEC extended the deadline for forms 3, 4 & 5 until 10 p.m., and they will still be considered filed the same day. Investors will not actually be able to see the forms online until the end of July as EDGAR undergoes technical changes.
There are no present plans to extend the deadline for other filings like annual or quarterly reports, SEC officials said.
INSIDER SELLING SKYROCKETS
The rule comes into effect as corporate executives disposed of $3.3 billion worth of stock in May, a two-year high, according to Thomson Financial.
Thomson said the spike in selling was a seasonal matter related to corporate restrictions on insider trading during the first quarter earnings season. It also said the recent market recovery had a role in executives taking profits off the table.
Recent sellers include insiders at managed health plan operator Coventry Health Care Inc. (NYSE:CVH - news) and biotech firm Genentech Inc. (NYSE:DNA - news), while buyers came from cable TV operator Cox Communications Inc. (NYSE:COX - news) and oil giant ChevronTexaco Corp. (NYSE:CVX - news), they said. |
