SEC seeks earlier disclosure of insider trades, other data

Proposed reforms stem from Enron scandal

April 12, 2002|By BLOOMBERG NEWS

WASHINGTON - The Securities and Exchange Commission voted yesterday to propose making companies disclose executive stock trades in as little as two days to give investors early clues about the faith that corporate leaders may have in their firms.

The proposed rule - and a second proposal to shorten by one-third the deadlines for companies to file annual and quarterly reports - were approved unanimously as reactions to Enron Corp.'s bankruptcy and to investor calls for more current information about the financial health of companies.

Enron's collapse last year was preceded by Chairman Kenneth L. Lay's sales of $70.1 million in stock back to the company, transactions not disclosed until after the Houston energy trader filed the largest U.S. bankruptcy reorganization ever.

"We have seen a situation arise fairly recently with respect to Enron, where it appears there were insider transactions that were not required to be disclosed to the public," SEC Chairman Harvey L. Pitt said. "We all looked at that and thought that's a loophole we should close. And this closes it."

The agency's proposed rule would require companies to disclose sales and purchases of stock by corporate insiders on the SEC's "8-K" or "current report" format, which companies now file to report important news to investors. Transactions or loans totaling more than $100,000 would need to be filed within two business days, with longer deadlines for smaller transactions.

Currently, corporate insiders are responsible for disclosing their stock transactions, not the companies.

For some kinds of transactions, such as sales back to the company like those made by Lay, corporate officers must report them within 45 days after the end of a company's fiscal year. That means some stock sales can remain undisclosed for more than one year.

Other transactions must be reported within 10 days after the month in which the transaction took place. So a transaction that occurred on the first day of a month wouldn't have to be reported for 40 days.

The commission also proposed to require companies to file annual reports within 60 days instead of 90 days after the end of a fiscal year. Quarterly financial filings would be required in 30 days instead of 45 days.

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