Category Archives: SEC Regulations

Capital Markets Disruptor: Real Estate Crowdfunding in the USA

Guest bloggers: Mark Schonberger, Partner and Daniel Koehler, Associate

Public REITs and other sponsors of real estate funds and projects have traditionally enjoyed the benefit of a broad range of choices to raise capital. Public REITs can obtain financing on a project-by-project basis or at the corporate level by means of public offerings or private placements, and REITs can also access capital as sponsors of their own opportunity funds or through strategic joint ventures. Similarly, private real estate sponsors have historically relied on a variety of nonpublic capital raising mechanisms at the property, joint venture or fund level.

We’re proud to have supported Goodwin Procter by providing the Regulation A+ data for this article and whitepaper.

Each of these means offers unique advantages and disadvantages, and each figures prominently in the real estate investment landscape. However, that landscape is poised to be considerably disrupted by the advent of real estate crowdfunding, which can lower the cost of raising capital while offering a broader range of investment options.



SEC update: Required revisions to 10-K, 10-Q and 8-K cover pages

The SEC has adopted new rules that change the cover pages of Securities Act registration statements (Forms S-1, S-3, S-4, S-8, S-11, F-1, F-3 and F-4) and Exchange Act periodic reports (Forms 10-K, 10-Q and 8-K), as well as Forms 10, 20-F and 40-F, to include new check boxes for a company to mark whether, at the time of filing, the company is an EGC and whether it has elected not to use the extended transition period to comply with new or revised accounting standards.

What Should You Do?

All companies, EGCs or otherwise, should immediately contact their financial printing firm to revise their appropriate cover pages. Specialized printing companies employ experts in the ever-evolving rules from the SEC and other regulatory bodies, as well as EDGAR and XBRL, and can ensure a smooth adoption of any new requirements. These changes have come because the SEC has adopted technical amendments from the Jumpstart Our Business Startups Act of 2012 that impact forms filed under the Securities Act of 1933 and the Securities Exchange Act of 1934. According to the new rules, companies must check boxes on the form covers to indicate whether or not they are emerging growth companies (EGCs), and if they are, whether they will comply with the financial accounting standards defined under the JOBS Act or will take advantage of the optional extended transition period before doing so.

Section 107 of the JOBS act allows an EGC to forego any or all of the disclosure exemptions. Any EGC that opts out of the extended transition period must make the SEC aware of this decision when first asked to file a periodic report, registration statement, or any other SEC report that falls under Section 13 of the Exchange Act. The new checkboxes on the listed forms serve as a standardized way to inform the SEC of a company’s status and choice (which, once made, is irrevocable) and can be found with checkboxes regarding a company’s status as accelerated filer. EGCs can be considered accelerated filers, non-accelerated filers, or smaller reporting companies, meaning these boxes should also be appropriately checked.

The final rule can be found here.

Securities Act Forms F-1, F-3, F-4, S-1, S-3, S-4, S-8 and S-11.
Exchange Act Forms 8-K, 20–F and 40-F.


SEC adopts rule requiring Exhibit Index items must hyperlink to referenced source

Yesterday, the SEC held an open meeting to discuss a few topics that created “action items” for most all issuers (and their SEC filing agents). One discussion, now moved into the comment phase, is the complete adoption of inline XBRL. That is still not settled, although likely to pass.

What IS settled is the new rule and form amendment mandate that the Exhibit Index in registration statements and reports contain hyperlinks to those exact referenced exhibits listed. Adjunct to this is a ruling that all filings are to be made in HTML format. (Logical, as you cannot link in ASCII.)

Adding hyperlinks will eliminate the arduous and manual research process investors currently endure to dig deeper into the exhibits.

The new amendments would apply to forms:

  • S-1
  • S-3
  • S-4
  • S-8
  • S-11
  • F-1
  • F-3
  • F-4
  • F-10
  • SF-1
  • SF-3
  • 10
  • 10-K
  • 10-Q
  • 8-K
  • 10-D
  • 20-F

These exhibit items ain’t gonna link themselves!

Depending on the depth of your Exhibit Index, the tactical labor of creating these links will be work for issuers and Vintage  This varies by company and by sector… as this REIT client (below) understands. They have 39 pages of exhibits to research, link and QA check. Fortunately, they have us. The silver lining to this “transparency act” is that, like many compliance tasks, the first time set-up is the most time-consuming. Many of the linked references will roll from one document into the next – similar to XBRL tags.



This ruling is considered a common sense mandate to help investors and web-technologically overdue. SEC Commissioner Kara Stein stated, “In many cases, exhibits are incorporated by reference, meaning that they are not attached to a current filing. In order to find an exhibit, an individual would need to embark on a time-consuming search.”

Acting SEC Chair Michael Piwowar remarked that the new rules will “harness technology,“focus the light of disclosure in ways that empower investors” as well as stimulate “efficient regulation.”

The effective date for most issuers will be September 1, 2017. Read the formal ruling here and the SEC news release here.   Hyperlinked to ease your research.




“All printed proxy statements shall be in roman type at least as large and as legible as 10-point modern type”


Amazingly, that is one of the many retentive guidelines the SEC published regarding the production of your proxy document in 2017. Although, judging by the work we produce for our clients, holding to the intent and spirit of the font guideline is acceptable… aka: yes, you can use Arial and Helvetica now, too. 

That’s just one of the details companies must work through annually. Our SEC Reporting Rules Guidebooks has 325 pages JUST on proxy materials. Request your free books HERE. (These are hardcopy books that we ship to you)

Layout guidelines, Rule 14a-5, include:

(a) The information included in the proxy statement shall 
be clearly presented and the statements made shall be 
divided into groups according to subject matter and the 
various groups of statements shall be preceded by 
appropriate headings. The order of items and sub-items  
in the schedule need not be followed. 

Where practicable and appropriate, the information shall 
be presented in tabular form. All amounts shall be 
stated in figures. Information required by more than one 
applicable item need not be repeated. No statement need  
be made in response to any item or sub-item which is 

(d)(1) All printed proxy statements shall be in roman 
type at least as large and as legible as 10-point modern 
type, except that to the extent necessary for convenient 
presentation financial statements and other tabular data, 
but not the notes thereto, may be in roman type at least 
as large and as legible as 8-point modern type. All such 
type shall be leaded at least 2 points.

(2) Where a proxy statement is delivered through an 
electronic medium, issuers may satisfy legibility 
requirements applicable to printed documents, such as 
type size and font, by presenting all required information 
in a format readily communicated to investors.

Beyond font considerations, companies are creating proxy documents that boldly cross over from mere SEC compliance into true shareholder communications. In fact, in EY’s most recent survey on corporate disclosures, 41% of issuers reported they were reducing flat text narrative in favor of graphs, charts and infographics.

All of the discussions and recommendation we are now having within the planning stage with our clients have started with our 2017 Proxy Design Templates guide.



As you’ll learn, we’ve streamlined many of visual decisions companies need to address – allowing investor relations teams, corporate secretaries and counsel to focus on the financial tables’ content and not the table’s header color.

Corporate brand and shareholder engagement, once the mantle of the annual report, now reside in the proxy.  

Dodd-Frank as a profit center


Despite the unknown future of Dodd-Frank at the highest level, one element – the whistleblower program – closed out 2016 with record year in “revenue.”

As last year drew to an end, the SEC issued its 2016 annual report on the Dodd-Frank Whistleblower Program to Congress, revealing that 2016 was a record year for the initiative. Since its roll-out in 2011, the program had paid over $111 million in awards to whistleblowers who have come forward with information of corporate fraud. The SEC has generated over $500 million in penalties.

It’s notable that the program has been on an upswing: The SEC awarded $57 million in fiscal year 2016 alone – more than in all prior fiscal years combined.

Now, in 2017, the investment industry shouldn’t expect much of a slowdown for the whistleblower program, as long as the program—and Dodd-Frank itself—remains untouched under Donald Trump.

“Cyber” + whistleblower = a new risk

A new, emerging area of whistleblower concern for issuers and investment firms is the company’s ability to protect itself – and its customers – against cybersecurity breaches… specifically, should the firm fail to have adequate control measures in place. This new area of risk is creating significant whistleblower opportunities for employees (in the IT group?) and may fall under the radar of corporate whistleblowing initiatives. Whistleblowing is not ONLY about fiscal shenanigans.  

hat2As “we the people” usher in our new administration – one with a different take on financial regulation that is expected to push for sweeping policy changes – and as the SEC undergoes a change in leadership, there is likely to be a period of uncertainty regarding regulatory and compliance issues.

Our SEC Reporting & Filing in the Trump Administration” webinar discussed this in detail: LISTEN HERE.

The whistleblower office at the SEC is expected to survive, however, and companies should prepare accordingly. While the program could change from its current form, outright repeal would likely require positive legislative action, including passage through both House and Senate, which is considered to be an uphill battle given the bipartisan support the whistleblower program currently enjoys.





Will disclosure reform favor corporations or investors? Experts weigh in.

Stakeholders in the reporting community have strong and diverse opinions on the subject of disclosure reform.  We asked five leading experts to weigh in.


Vintage question > Critics such as Senator Elizabeth Warren have argued that the SEC disclosure effectiveness initiative is designed only to make things easier for filers (especially large corporates), not to help investors or actually improve disclosure of financials. Where do you think the SEC’s priorities lie – more with filers, or more with investors?

Anna Pinedo > The SEC’s priorities lie with protecting investors while continuing to promote capital formation. The SEC was not intended to discharge a political mandate and should not be politicized.

Robert Herz > First of all, the SEC’s initiative was actually mandated – it came out of the JOBS act. In a broader context, the SEC mission relates to both investor protection and to the efficiency and effectiveness of our capital markets and overall capital formation. It’s not just investor protection – that’s a very important part of it, and disclosure an important part of that – but it’s not the only component. When I served as chairman of the Financial Accounting Standards Board, we issued disclosure standards as well as accounting rules, and the first place you start is, “What do investors want and need?” At the same time, you also have to look at the cost effectiveness of rule changes. So, you try to get input from both sides, as well as from other knowledgeable stakeholders, and look at costs and benefits intensively.

I would hope that is the approach taken by the SEC in this whole endeavor.

I would say that what they’ve come up with so far is quite promising. Whether it will go anywhere is another question. One of the problems with the SEC is that the half-life of a chairman, a chief accountant, and other key people is two to four years at most, and then somebody else comes in. The question is whether it can be sustained or not.

v-redthe-irwhitepaperFor example, they had a very big similar reform effort in the 1990s and it didn’t get very far. I think most stakeholders in the reporting system, including a number of knowledgeable investors and analysts, agree that it is time to modernize and get rid of outdated requirements, put things in better context, and broaden some of the information that gets included. I think the time is right for that.

Dan Hanson > Transparency is a good thing for investors. But looking at where we are today, the information overload can be more obfuscating than helpful. There’s still a securities industry classification code for buggy-whip manufacturers, for instance, so there is room to take stock of where we are today. That is the counterpoint to Senator Warren’s argument: less sometimes is more, as long as it’s focused on the material issues. And you balance that with the fact that there is clearly a role for protection and a disclosure framework.

The other point I would make is that without the heavy hand of government intervention or required disclosure, there is a natural market-driven motivation that can be very positive. If you let the markets work, they tend to reward high-caliber business models and candid, credible management teams. In an ideal situation, you get really high-quality managements that are transparent about their business practices, and both the markets and their customers like it. They want to do business with them. I think you can foster a race-to-the-top environment using market forces.

So I think it’s a balance of having protections for investors, but also knowing ultimately that the onus is on management to report in a forthright way. And that’s really no different from the traditional financial reporting framework. In fact, I would make the analogy that under traditional GAAP and financial statements accounting, there is plenty of room for issuers to use conservative or aggressive assumptions and still have credible GAAP audited results. There is room for judgement, and so the market is reliant on management teams to take to heart the idea of providing transparency to the capital markets, because they know that they can be rewarded with a lower cost of capital.

Broc Romanek > Overall I am a fan of Senator Warren, but I think she is misguided here. For one thing, SEC Chair Mary Jo White, to whom she addressed her letter, is on the way out, so I think the letter was really aimed at the next SEC chair. But ultimately, I don’t think the Senator clearly understands the disclosure effectiveness project. She says that it seems like it is aimed at making things easier for companies; the way I read what the SEC has put out is that they’re asking the right questions.

The SEC’s mission has always been investor protection – although the commissioners, admittedly, have become partisan, which they were not a decade ago. There clearly are some commissioners that I’d say are more pro- business than pro-investor. There’s no reason why someone can’t be both, but in some cases they are more one than the other. At the end of the day, I think the SEC recognizes that while this project may result in some slight reduction of duplicative disclosures, the end product will illicit many new disclosures, and so the net result will actually be more information, not less. I don’t think the SEC has been telegraphing any other message than that.




Erik Bradbury > To those who are upset with the SEC’s review of their disclosure policies, I would say that the SEC has always been in the business of reviewing its disclosure requirements. Perhaps not to this extent before, but it’s unreasonable to think that the SEC should never review its disclosure regime and ask whether the existing rules should be modified. An approach that only ever adds to disclosure but doesn’t question whether existing disclosures remain necessary or whether they’re outdated or should be modified is a flawed system, because it only makes disclosure even more voluminous and inaccessible.

One of the questions asked in the SEC release is who the audience should be for disclosure, and I think this is really vital to unlocking the point of view that you’re hearing from different constituents. Our point of view is that commission rules should emphasize disclosure of information useful to a reasonably knowledgeable investor – in other words, investors who are willing to make the effort needed to study disclosures, leaving to disseminators the development of simplified formats and summaries useful for less experienced and less knowledgeable investors.

The key question here is: Who is a reasonably knowledgeable investor? I think that is an important question that needs to be answered, and that helps to understand why our point of view is what it is. We believe that we need to expand the scope of who is captured in that definition of “reasonably knowledgeable investor” by making our financial reports more broadly accessible.

We had a conference at Pace University earlier this year and one of the highlights was our keynote speaker, General Electric CFO Jeff Bornstein. His presentation emphasizes what I’m trying to say here in a very profound way. GE looked at its investors and discovered that around 60% were institutional investors, but they still had 40% who were retail investors. And when they looked at how they produced their financial information, they realized that it would be very hard for 40% of their investors to understand their business in a meaningful way given how they were putting together their reports.

And the proof is in the pudding here. In 2012, if you look at the first 15 days of their 10-K being released, they had approximately 100 downloads of the document. Then they started making disclosure improvements and added an “Integrated Summary Report,” which essentially takes all the key components from their financial reports and puts it into a summarized format. After they made these improvement efforts, in 2015 they had 2,700 downloads of their report within the first 15 days, and in 2016 they had 8,700 downloads of the 10-K report. That speaks volumes to what we believe is the key to the effort here.

SEC discusses pay ratio disclosure to disappear

Six months ago, almost to the day, the Securities and Exchange Commission adopted the final rule that requires public companies to disclose the ratio of their CEO’s compensation against the median compensation of its employees. The ratio disclosure would apply to all companies required to provide executive compensation disclosure under Item 402(c)(2)(x) of Regulation S-K.


Beginning with their first fiscal year on or after January 1, 2017, this ruling (Section 953(b)) within Dodd-Frank’s say-on-pay mandate, would require IROs to “justify” their CEO value to The Street, employees and even consumers.

But yesterday, SEC Acting Chairman Michael S. Piwowar announced a review of the rule. The SEC is pursuing feedback from corporations about the complications with the disclosures. Many of our clients are working the very difficult math in their efforts to meet the ruling.

Public companies, and entire sectors, that have a large population of lower paid employees are very concerned that the ratio will be unjust in context to other sectors. Certainly, there are situations where CEOs have egregious salaries, but overall, the “shareholder communications  industry” questions the value of the disclosure to investors and their decision process.


“In order to better understand the nature of these difficulties, I am seeking public input on any unexpected challenges that issuers have experienced as they prepare for compliance with the rule and whether relief is needed. I welcome and encourage the submission of detailed comments, and request that any comments be submitted within the next 45 days.

I have also directed the staff to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

In addition to financial reporting and IR working their company’s numbers, our Proxy Production Team has been occupied guiding clients with the visual representation. This has driven many of our proxy materials’ conversations.

Our 2017 Proxy Design Styles addresses many visual and branding issues. Lean more here.

Experts speak on what’s driving SEC disclosure reform

With multiple releases related to disclosure in 2016, the SEC opened up a controversial can of worms. Five experts give their opinions about the Commission’s proposals.


Vintage question > How effective do you think the disclosure changes proposed by the SEC would be in achieving more efficient disclosure processes? And more generally, which specific areas of disclosure do you think are most in need of reform?

Broc Romanek > These are just concept releases right now, and when the SEC has a really big project, they do a concept release even before the proposing release. That’s what is happening here, and what that means is that this a multi-year project – in fact, it might be a decade- long project.

What will probably happen is that there will be proposals regarding small, niche areas, since that is really the only way for an agency to approach rule- making of such a large scale like this. The reason is that if the proposal is too big, there will be some controversial parts that will cause it to stall, particularly because the rule-making of any federal agency can now become politicized. Federal agencies also need to go through a cost-benefit analysis now, which by itself requires an agency to do a lot more homework before they propose and then adopt a rule.

As for which areas I think are most in need of reform, in my opinion there are two main high-value things investors are looking for. One of them is what I would call “straight talk.” This is the way Warren Buffett writes for Berkshire Hathaway – his annual report is very popular because it’s straightforward, written in a conversationalist style. I believe he writes it himself – it’s definitely not the CEO’s lawyer writing it – and he’s telling it like it is. He’s one of the only people to do it, and that is something that investors clearly want but CEOs aren’t doing.

v-redthe-irwhitepaperThe second valuable type of information that investors are really looking for is forward-looking information. Again, even though there is safe harbor in the securities laws to protect companies from liability to some extent, there is still some risk. In hindsight, if some forward- looking disclosure is wrong, a company can likely get sued if the stock price falls. So there just isn’t that much forward- looking information, and analysts and investors have to find other ways to do their homework on companies. Part of that forward-looking information, and part of what Warren Buffett writes about, is strategy. Strategy is part of these first two things that I mentioned – people want companies to talk more clearly about what their strategy is for the future.

There you also have competitive harm concerns – you don’t want to tip off your competitors regarding your strategy. But those are really the things that could probably boost disclosure the most. These are all high-level, but I think any reform should start at a high level and say, “Okay, what do people really want to read?” A lot of the disclosure we’re getting is really secondary and not market-moving information.

Anna Pinedo > I think the rule changes proposed by the SEC would be very effective in improving disclosures and making them more user-friendly and transparent. Eliminating outdated disclosure requirements, such as the need to include the registrant’s stock price performance and certain financial ratios, would also be a useful step I think. Similarly, I think it’s useful to eliminate repetitive disclosures that could be contained in one static “company document.” In my opinion, the areas most in need of attention are the risk factors section and the MD&A section.

Risk factor disclosure has become so lengthy so as not to be helpful to a potential investor. Registrants and their counsel are appropriately concerned about mitigating the risk of future litigation and respond to their concerns by including within the risk factors section numerous risks, including some generic risks, which may affect the registrants’ businesses and financial results. However, many registrants and their counsel choose to over-disclose.

While some commenters may observe that the length of risk factors or the number of risk factors does not pose a concern for potential investors, I believe that the disclosures may become so lengthy that a retail investor may have difficulty identifying those risks that are truly significant.



Erik Bradbury > We’ve done a lot of work in this space over the past few years, including in two recent responses to the SEC releases. By way of background, the FEI has a number of technical committees, the most prominent of which is the Committee on Corporate Reporting (CCR), and it is made up of approximately 45 of the Fortune 100 principal accounting officers, controllers, and other financial executives. To give you an idea of the magnitude, they collectively represent about US$5tn in market capitalization – so it’s a big group.

Our point of view is that we’re supportive of the SEC’s initiatives to review and improve disclosures for the benefit of investors. We feel that the SEC should focus on three areas. The first of these is the need for a principal-based framework. It’s our view that a principle-based framework that is appropriately designed with clearly stated objectives provides the best foundation to deliver decision-useful information to investors and users of financial statements. That was one of the questions asked in the concept release.

Another point we make is that materiality is a key component of this. It should be the primary consideration for determining what gets disclosed and to what extent. What does that mean? It means that bright-line disclosures are unnecessary. Materiality should be the basis for disclosing certain things, and bright-line disclosures don’t consider materiality at all. In some cases, they force companies to disclose things that they otherwise wouldn’t but are clearly immaterial to investors overall.

We also believe that disclosure should be flexible. In general, if you have a flexible disclosure that’s based on meaningful material factors for a registrant’s industry and business, that provides the framework for which a company can disclose information in the most effective way possible. MD&A is a good example of this – MD&A is rather flexible in terms of how companies are able to describe their businesses, and it has arguably stood the test of time.

And lastly, but importantly, we encourage the SEC to continue encouraging registrants to voluntarily improve their disclosures.

Dan Hanson > I’m an active manager of publicly traded equities, and as a fundamental investor I primarily do bottom-up research. I focus on a company’s business operations, and corporate disclosures are a really important part of that. As an investor, there’s no question that there is an issue of information overload, which creates a big burden for reporting companies and users of financial statements alike. The challenge for investors is to figure out what is relevant, which can be like searching for a needle in a haystack.

On the other side, issuers are often motivated by a concern about legal implications of disclosure. So it’s like entropy – you have perpetually more disclosure, without ever any roll-back. So the challenge is to balance the tension of having a good regulatory framework for required disclosure but also step back and allow management to really curate what they think is relevant and present a more concise view of what is material to their business, which will allow the investor to key in on those issues.

Regarding the SEC’s current initiative, I would cite the explosion of comments they received and say that they clearly struck a nerve. There was a huge volume of comments and they were highly substantive. Interestingly, some of them actually came from other government agencies, such as the EPA, as well as from many lawmakers. Some of the dialogue the SEC has had revolves around going to a uniform set of disclosures across government, and there could be a real harmony and elegance to that, in principle.



Update your EDGAR contact information by Jan. 30 to prevent deadline angst: step-by-step instructions


Our step-by-step guide will ease your pain!

On January 30th, 2017, the SEC is updating the security process for the EDGAR Passphrase reset. The Passphrase is essential for any filing entity – company or individual – to generate a new CCC, PMAC and Password.

It is essential that entities confirm and update their EDGAR contact information before the Jan 30th deadline.

After that date, if the contact information is not correct, the new Passphrase “security token” cannot be sent to the filer trying to reset their Passphrase.

  • Without this token, significant delays may occur – beyond 48 hours. Specifically, filers will need to provide authorization to have their codes reset, and in the case of a company, the request must be on company letterhead. If a Power of Attorney (POA) is provided, it must be manually signed. Clearly, this will affect a filer’s ability to timely submit their filings.
  • With the token, Passphrase updating should take just a few minutes.

To mitigate your risk of filing late due to misplaced codes and passwords, we have created this brief How to Update Your EDGAR Contact Information guide.

IMPORTANT: We can proactively manage the “Passphrase Update” and “Form ID” processes with you. It’s part of the client service support we offer at Vintage.

If you have any difficulty / are unable to log-in to confirm or edit your EDGAR contact information, please reach out to our client services team immediately BY CLICKING HERE to send an email to

Note: In line with the SEC’s processes for proposals, we are awaiting final acceptance of  this new rule. 

Section 16 filings are easy to DIY (a review of insider Forms 3, 4 and 5)

Prior the new year, we hold re-cap meetings with many clients. One of the most frequent topic is regarding Section 16 filings. 

There are three types of corporate insiders for purposes of Section 16: officers, directors and greater than 10% shareholders. We refer to these three types of corporate insiders collectively as Section 16 insiders.

The company officers subject to Section 16 are:

  • The president
  • The principal financial officer
  • The principal accounting officer (or, if there is no such accounting officer, the controller)
  • Any vice president in charge of a principal business unit, division or function (such as sales, administration or finance)
  • Any other officer who performs a significant policy-making function
  • Any other person who performs similar policy-making functions for the company

Section 16 insiders must file reports with the SEC disclosing their beneficial ownership of and transactions in a public company’s equity securities. The three forms on which Section 16 insiders must make these reports – Forms 3, 4 and 5.

Our DIY portal is very easy to learn and use.

Our DIY portal is very easy to learn and use.

Form 3: Initial Statement of Beneficial Ownership of Securities.

Section 16 insiders must file an initial report on Form 3 with the SEC within 10 days of becoming subject to Section 16. For a person who is elected an officer or director of a company that already has a class of equity securities registered under Section 12, the 10-day period begins when the person becomes an officer or director. Section 929R of the Dodd-Frank Act amended Section 16 of the Exchange Act to authorize the SEC to establish by rule a shorter time period within which a new Section 16 insider would be required to file a Form 3. As this handbook goes to publication, the SEC has not proposed any rule change that would shorten the current 10-day reporting window.

Persons who are officers, directors or greater than 10% shareholders of a company that registers a class of equity securities (and did not previously have a class of registered equity securities) are required to file a Form 3 on the effective date of the company’s registration statement. In any case, the Form 3 must disclose all equity securities of the company that the Section 16 insider beneficially owned on the date the person became subject to Section 16. Even if a director or officer owns no securities on the date he or she becomes a Section 16 insider, he or she is still required to file a Form 3.

In certain circumstances, the Section 16 insider should file an initial Form 3 earlier than is required. As discussed below, a Section 16 insider generally must report changes in his or her beneficial ownership of the company’s equity securities on Form 4 within two business days. If the Section 16 insider’s beneficial ownership of the company’s equity securities changes during the 10-day period before he or she must file a Form 3 (e.g., where a new director is granted restricted stock upon his or her appointment), the SEC recommends that the Section 16 insider file an initial Form 3 concurrently with a Form 4 reporting the change, notwithstanding that the rules permit the Form 3 to be filed at a later date.

Form 4: Statement of Changes in Beneficial Ownership.

After filing a Form 3, a Section 16 insider must report any subsequent change in beneficial ownership of the company’s equity securities by filing a Form 4 within two business days, unless the transaction is exempt from reporting or is eligible for deferred reporting.

Transactions that must be reported on Form 4 include, but are not limited to:

  • Non-exempt purchases and sales of equity securities held in the Section 16 insider’s name
  • Transactions involving equity securities held by others but that the Section 16 insider is deemed to beneficially own (i.e., equity securities in which the Section 16 insider has a “pecuniary interest,” as discussed above)
  • Exercises or conversions of derivative securities
  • Acquisitions and grants of any of the company’s equity awards (including options), even if not presently exercisable
  • Entry into various other derivative transactions, including equity swaps and similar hedges
  • Awards to non-employee directors made pursuant to equity incentive plans
  • Equity securities received from a non-exempt dividend reinvestment
  • Dispositions of equity securities to the company (e.g., the company’s retention of shares to pay the Section 16 insider’s tax withholding obligation upon the exercise of stock options)

Following an IPO, the directors and officers of the company before it became public may be required to report certain pre-IPO transactions in the company’s equity securities. Such a filing obligation may arise if the director or officer engages in a reportable transaction less than six months after the date that the company’s registration statement becomes effective. In such event, the director or officer is required to “look back” for a period of six months from the date of the reportable transaction and report on its first required Form 4 any transactions in the company’s equity securities that occurred during that period. Persons who are Section 16 insiders by virtue of being greater than 10% shareholders are not subject to six-month look-back periods. Likewise, a covered officer or director may be required to report transactions that occur after the company ceases to be a public company (i.e., because of termination of its Section 12 registration and reporting obligations). An otherwise reportable transaction occurring after the company is no longer public will be reportable on Form 4 if (and only if) the transaction is not exempt from Section 16(b) and occurs within six months of an “opposite way” transaction that was also subject to Section 16(b) and occurred while the company was public. For purposes of this rule, an acquisition and subsequent disposition (or vice versa) are considered “opposite way” transactions.

A covered officer or director may also be required to report transactions that occur after the termination of that person’s officer or director status. An otherwise reportable transaction occurring after the cessation of a person’s officer or director status will be reportable on Form 4 in the same circumstance as a transaction that occurs after a company ceases to be public (i.e., if (and only if) the transaction is not exempt from Section 16(b) and occurs within six months of an “opposite way” transaction that was also subject to Section 16(b) and occurred while the person was still a director or officer). A person who is a Section 16 insider solely by virtue of being a greater than 10% shareholder ceases to be subject to Section 16 reporting requirements once the person ceases to be a greater than 10% shareholder.

The SEC has adopted a variety of exemptions from the reporting requirements of Section 16(a) based upon the nature of the transaction. These exemptions apply to the following types of transactions:

  • Any increase or decrease in the number of equity securities held as a result of a stock split or a stock dividend applying equally to all securities of a class
  • The acquisition of rights, such as shareholder or preemptive rights, pursuant to a pro rata grant to all holders of the same class of registered equity securities
  • Transactions that effect only a change in the form of beneficial ownership without changing the person’s pecuniary interest in the subject equity securities (note, however, that this exemption does not cover the exercise and conversion of derivative securities or deposits to and withdrawals from voting trusts)
  • Certain transactions pursuant to tax-conditioned employee benefit plans
  • Acquisitions made pursuant to a dividend reinvestment plan, provided that the plan meets certain requirements specified in Rule 16a-11 under the Exchange Act
  • Acquisitions or dispositions of an equity security pursuant to a domestic relations order
  • The disposition or closing of a long derivative security position as a result of cancellation or expiration, provided that the Section 16 insider receives no value in exchange for the expiration or cancellation

In addition to the above exemptions, the SEC has adopted a number of exemptions based upon the status of the Section 16 insider. Depending on the circumstances, certain of these exemptions may be available to executors and other fiduciaries, odd-lot dealers, market makers, arbitrageurs, underwriters and other persons who participate in a distribution of the company’s equity securities.

Form 5: Annual Statement of Changes in Beneficial Ownership

A Section 16 insider must report certain transactions on a year-end report on Form 5within 45 days after the end of the company’s fiscal year. Some transactions, most notably gifts, are not required to be reported on Form 4, but must be reported on Form 5. A Section 16 insider is required to file a year-end Form 5 to report any transaction that the person should have reported during the fiscal year on Form 3 or Form 4, but did not. Transactions reportable on Form 5 are limited to the following:

  • Certain transactions occurring during the most recent fiscal year that are exempt from short-swing profit liability under Section 16(b), such as bona fide gifts of the company’s equity securities, but excluding exempt transactions which involve the company
  • Qualifying de minimis acquisitions of the company’s equity securities
  • Transactions that the Section 16 insider should have reported on Form 3 or Form 4 during the most recent fiscal year, but did not

Disclosure of Reporting Delinquencies; Compliance Programs. Item 405 of Regulation S-K requires a company to disclose in its annual proxy statement and annual report on Form 10-K certain information regarding the failure of any Section 16 insider to timely file a Section 16 report during the previous fiscal year or prior fiscal years. For each such delinquent Section 16 insider, the company is required to set forth the number of late reports, the number of transactions that were not reported on a timely basis, and any known failure to file a required Form 3, 4 or 5. Although there is no official sanction placed upon the company as a result of the filing delinquencies of its insiders, such disclosures are potentially embarrassing.

Accordingly, every public company should develop and implement a strong compliance program to ensure that its directors and officers timely file all required reports. In addition to minimizing the potential for embarrassing disclosures of the type described above, a strong compliance program will assist the company’s directors and officers in avoiding both short-swing liability under Section 16(b) and SEC enforcement actions to enforce Section 16(a)’s reporting requirements.

Filing Procedures and Website Posting.

All Section 16(a) reports must be filed with the SEC electronically using the SEC’s EDGAR filing system, and all reports become publicly available immediately upon filing.