CH 3

insider trading penalties

1. Civil - three times the amount gained (or loss avoided) 2a. Criminal - Individuals - $5 million fine or 20 years in prison 2b. Criminial - Corporation - $25 million fine

ABC corp is displaying the current quote Bid 24.90 Ask 25.10 Last 25.00 What is the highest price ABC can pay for its stock under Rule 10b-18?

25 May not exceed the higher of the independent bid or the last transaction.

John, a trader at your firm, has an important client who has been following LLRS, a stock traded on the Nasdaq Capital Market system but has not yet placed an order because of the security's illiquidity. John begins trading LLRS with Pete, another trader for your firm, in an attempt to increase the security's trading activity. This activity is considered:

A violation of the antimanipulation provisions of the Securities Exchange Act of 1934 When a group of traders repeatedly trades a security for the purpose of creating a false or misleading appearance of active trading in that security, it is referred to as painting the Tape and is a violation of the antimanipulation provisions of the Securities Exchange Act of 1934. Whether the manipulation is successful in getting other investors to trade the stock is not relevant since the action itself is prohibited. A cross trade occurs when a broker-dealer acts as an agent for both sides of a transaction. This activity can benefit both sides of the transaction and is acceptable as long as the broker-dealer discloses to both parties of the transaction that it represented both the buyer and seller. The disclosure must be noted on both customers' confirmations.

Which of the following situations would trigger a 13D filing in Yuma industries? A) A fixed-income investor holds 11% of Yuma's outstanding debt B) A hedge fund holds 7% of Yuma common C) A broker-dealer has retail accounts that collectively hold 6% of Yuma common D) An aggressive trader has a short position in excess of one million shares

B) A hedge fund holds 7% of Yuma common Any person who becomes the beneficial owner of more than 5% of any class of equity security registered under the Securities Exchange Act of 1934 must file a statement of beneficial ownership on Schedule 13D with (i) the issuer, (ii) each exchange on which the security trades, and (iii) the SEC. The report must be filed within 10 days after the acquisition. The broker-dealer does not need to file since the firm is not the beneficial owner of those shares. However, the hedge fund is the beneficial owner and would be subject to filing.

According to Sarbanes-Oxley, a company's management is responsible for maintaining a system of internal controls over financial reporting (ICFR). This system should provide a reasonable assurance regarding the reliability of financial reporting, the preparation of financial statements for external use, and an assurance that the reports are in accordance with generally accepted accounting principles. This report:

Does not require that management follow a specific checklist published by the SEC Senior management must produce an annual report that includes: -A statement of management's responsibility for the establishment and maintenance of adequate internal controls over financial reporting -Management's assessment of the effectiveness of the company's internal controls over financial reporting as of the end of the company's most recent fiscal year -A statement identifying the foundation used by management to evaluate the effectiveness of the company's internal controls over financial reporting -A statement that the registered public accounting firm that audited the company's financial statements has issued an affirmation of management's assessment of the company's internal controls over financial reporting To provide the appropriate flexibility, the SEC has issued an interpretive memo that states that the Commission assumes management has established and will maintain a system of internal accounting controls as required by the Foreign Corrupt Practices Act of 1977 (FCPA). The FCPA was created as an antibribery law and prohibits issuers and other U.S. persons from making a payment to a foreign official in exchange for obtaining or retaining business. Furthermore, the guidance offered by the SEC is not intended to explain how management should design its Internal Controls and Financial Reporting system. The guidance offered by the SEC does not provide a checklist of steps management should perform in completing its evaluation of its internal controls and financial reporting system.

According to the Securities Exchange Act of 1934, an institutional investment manager who trades with discretionary authority is required to file a form with the SEC if the holdings are:

Equity securities valued at $100,000,000 or more Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings when an institutional investment manager exercises investment discretion over at least $100,000,000 in equity securities during any month of the calendar quarter.

Hart-Scott-Rodino Act

Federal statute requiring notification to FTC and Justice Department's Antitrust Division. mergers involving certain amounts or parties -merger may not be completed for a minimum of 30 days after notification.

Any person who acquires more than 5% of any equity security must file a form with the SEC within how many days?

Section 13(d) of the Exchange Act requires anyone who acquires more than 5% of an issuer's equity securities to notify, within 10 days after the acquisition, the issuer, each exchange on which those securities are traded, and the SEC.

When may a corporate officer sell short shares in her own company?

If delivery can be made within 20 days in a short-against-the-box transaction Generally, insiders are prohibited from selling short stock in their subject company. An exception is granted in that an insider may engage in a technical short sale known as a short-against-the-box transaction in which the seller owns the shares but cannot make immediate delivery. In this case, the seller must make delivery within 20 days.

Rule 10b-18 Safe Harbor

safe harbor to issuer purchasing its own common stock if it meets ALL of the following guidelines: -One B/D used -may not be the opening trade and may not be made in the last 10 minutes of trading for actively traded securities or the last 30 minutes of trading for non actively traded securities. -limited to 25% or less of the stocks 4 week ADTV or a single block purchase per week. -may not exceed the higher of the independent bid or last transaction.

A company based in the United Kingdom has hired a U.S. investment bank to make a tender offer for a U.S. company. An investment banking representative, who is not working on the deal, but is employed in the mergers and acquisitions department of the investment bank, finds out about the tender offer and buys shares of the target company's stock, prior to the announcement of the tender offer. Which of the following statements is TRUE?

This would be considered a violation SEC Rule 14e-3 prohibits persons from trading while in possession of material nonpublic information concerning a tender offer. The fact that the investment banking representative was not directly involved in the tender offer is irrelevant.

Form 10-Q Quarterly Report

-Due within 45 days of the end of the quarter. -Don't have to be audited -First 3 quarters (3 of them filed, plus the annual report)

Tender Offer Rules

-must be kept open for 20 bus days from announcement -if amended must remain open for 10 bus days from amendment -cannot purchase same security or convertible in the open market for the duration of the tender, but can purchase non convertible bonds. -subject company must notify and advise share holders w/in 10 bus days.

Information that is normally considered insider information would be deemed to be released to the public under which of the following circumstances?

A corporation releases the information to financial news media, which disseminates the information to the public If a corporation has material information, it must release it to the public before anyone may use the information to execute a transaction. It would not be deemed appropriate to release the information only to broker-dealers, financial analysts, shareholders, or any other limited group. To be considered public information, it must be provided to the financial news media, which must then have a chance to disseminate it.

Jupiter Corp has announced a tender offer for Saturn Industries. After the offer, the management of Saturn Industries is required to: A) Tender all shares held by executive management B) Notify shareholders within 10 business days of the company's response to the tender offer C) File a FOCUS report D) Negotiate the tender price on behalf of stockholders

B) Notify shareholders within 10 business days of the company's response to the tender offer A company that is subject to a tender offer is required to notify shareholders of such an offer no later than 10 business days from the date the tender offer is made. Along with a notice of the tender offer, the subject company must also either (a) recommend that shareholders accept or decline the tender offer, (b) express that it has no opinion and remains neutral, or (c) state that it is unable to take a position on the tender offer

All of the following information may be found in a Schedule 13D, EXCEPT: A) Whether the filer is an individual or a group B) The name of the financial institution that is providing the funds for the purchase C) The number of shares that are currently being held by the filer D) The purpose of the transaction

B) The name of the financial institution that is providing the funds for the purchase A 13D filer is required to provide certain information such as: -The security and issuer -The identity and background of the filer, which may be an individual or a group -The source and amount of funds, or considerations that were used for the purchase. This section will indicate if the funds used to purchase the securities were borrowed, or came from an existing cash position of the filer. -The purpose of the transaction. This important section indicates if the filer wants to acquire the company, or is purchasing the shares as an investment. -The number of shares and the percentage ownership of the filer -Contracts or relationships regarding the securities of the issuer, e.g., a standstill agreement -Any material to be filed as exhibits, e.g., a merger agreement or a tender offer agreement -Although the source of the funds is disclosed, the name of the financial institution providing the funds is not a required disclosure. The filer is required to update the schedule promptly for material changes.

Broker-Dealer X has several business lines, including investment banking and market making. While X's investment banking department is in the process of proposing a deal to a Nasdaq issuer, insider information about the issuer is inadvertently overheard by the trader responsible for making a market in that stock. Which of the following statements is TRUE?

Broker-Dealer X's ability to trade securities may be affected because an information barrier was breached Maintaining the integrity of information barriers is important in a multiservice firm that possesses insider information about an issuer, since the barriers enable the firm to isolate the information in one department, such as investment banking, allowing other departments, such as trading, to go about their business as usual. If the information barriers are breached, the contaminated department may find its activities regarding that issuer severely restricted to prevent violations of insider trading rules. (

The CFO of a publicly traded company maintains an account at your firm. He recently sold some of his shares of his company's stock and has asked that the transaction be kept confidential. The CFO should be informed that the transaction:

Must be reported to the SEC by the end of the second day following the transaction All trades by corporate insiders (officers, directors, and owners of more than 10% of the corporation's outstanding shares), regardless of size or listing status, must be reported to the SEC by the end of the second business day following the transaction.

Block Trade

a transaction for $200,000 or 5,000 shares with $50,000 or more.

Form 10-K

the annual report that publicly traded companies must file with the SEC -must be audited -List of company's directors and executive officers

Form 8-K

the report used by publicly traded companies to disclose any material event not previously reported that is important to investors -Filed within 4 business days of material event. ex (change in control, accountant, or fiscal year)

An issuer would like to repurchase its shares in the market under the safe harbor provisions of Rule 10b-18. You would advise the issuer to limit the amount of stock purchased on any single day to no more than what percent of the ADTV for that security?

25%

Schedule 13D Filings

5% beneficial owners are required to file a report with the issuer, SEC, and securities markets (where securities trade) within 10 days of any transaction that results in beneficial ownership of more than 5%. -Filed within 10 days with the issuer, the SEC, and the exchange on which the stock trades.

The maximum criminal penalty for individuals who are convicted of insider trading violations is:

A $5,000,000 fine and/or 20 years in prison Maximum criminal penalties under the Securities Exchange Act of 1934, including violations of insider trading rules, are a $5,000,000 fine and/or 20 years in prison for each violation. The maximum civil penalty that can be assessed is three times the amount gained or loss avoided. The U.S. Department of Justice (DOJ) would initiate criminal proceedings and the SEC would initiate civil proceedings concerning violation of federal securities law.

Which of the following statements is NOT TRUE concerning the tender offer process? A) A definitive proxy statement is filed by the issuer to provide information to shareholders B) Any communication in which comments on the merger are being made by executives of either company is filed with the SEC C) A Schedule TO is filed by the acquirer in order to provide the terms of the transaction to shareholders D) A Schedule TO is filed by the issuer to repurchase any of its fixed-income securities

A) A definitive proxy statement is filed by the issuer to provide information to shareholders The proxy statement would be provided if shareholders would be voting on the M&A transaction. A Schedule TO is filed by the acquirer to provide both the terms of the transaction as well as other required information to shareholders of the target company. Any communication in which comments on the merger are being made by executives of either company is filed with the SEC. (These are referred to as 425 filings.) If the target has fixed-income securities outstanding, it may want to repurchase these securities from its holders. In this case, the target will file a Schedule TO in order to provide information to the holders of these securities.

The filing of Form 8-K, pursuant to the Securities Exchange Act of 1934, is required for all of the following circumstances, EXCEPT: A) A person acquiring more than 5% of the stock of the registrant B) A change in control of the registrant C) A change in the registrant's accountant D) The resignation of a director

A) A person acquiring more than 5% of the stock of the registrant All companies that are registered with the Securities and Exchange Commission are required to file Form 8-K for current reporting, upon the occurrence of any material event that would affect its financial condition or the value of its shares, and that would be deemed of significant interest to the public. Each occurrence listed, except for a person acquiring more than 5% of the stock (a Schedule 13D would be filed) would necessitate the filing of Form 8-K. It would also be required if the firm were involved in a bankruptcy proceeding or if the firm acquired or disposed of a significant amount of assets not deemed to be in the ordinary course of business.

Which of the following entities would be required to file Form 13D with the SEC? A) A person who owns 3% of a public company's common stock and who has just purchased 2.5% of the same company's stock for the UTMA account of a minor child B) A hedge fund which has investment discretion over $100 million of equity securities C) A person who owns 4.0% of the common stock of the Pine Corporation, a publicly traded company, who intends to ultimately acquire a controlling interest in the company D)A broker-dealer that holds 7.0% of Ykeya Furniture stock in street name for several hundred retail customer accounts

A) A person who owns 3% of a public company's common stock and who has just purchased 2.5% of the same company's stock for the UTMA account of a minor child Any person who becomes the beneficial owner of more than 5% of any class of equity security registered under the Securities Exchange Act of 1934 must file a statement of beneficial ownership on Schedule 13D with (i) the issuer, (ii) each exchange on which the security trades, and (iii) the SEC. The report must be filed within 10 days after the acquisition. The person holding only 4% has not yet hit the reporting threshold. If a group of persons acting in concert purchases more than 5% of the security, the group must file in the same manner as an individual. The broker-dealer holding securities for multiple retail accounts does not need to file since the firm is not the beneficial owner of those shares. A hedge fund or an investment manager that exercises investment discretion over at least $100 million must file a Form 13F quarterly.

Under Section 404 of Sarbanes-Oxley, how often must companies that are subject to the reporting requirements of the Securities Exchange Act of 1934 file reports detailing the company's internal controls over financial reporting? A) Annually B) Quarterly C) Every three years D) Monthly

A) Annually Sarbanes-Oxley requires that the company include in its annual report: -A statement of management's responsibility for the establishment and maintenance of adequate internal control over financial reporting -Management's assessment of the effectiveness of the company's internal controls over financial reporting as of the end of the company's most recent fiscal year -A statement identifying the foundation used by management to evaluate the effectiveness of the company's internal control over financial reporting -A statement that the registered public accounting firm that audited the company's financial statements has issued an affirmation of management's assessment of the company's internal control over financial reporting

Tendering of securities is permitted if an individual is: A) Long a convertible security that has not been tendered for conversion B) Long call options C) Long investment-grade, nonconvertible securities D) In possession of the securities by virtue of having borrowed them

A) Long a convertible security that has not been tendered for conversion Short tendering of stock, which means tendering stock that a person does not own, is prohibited. Securities may be tendered only if the investor is long the stock or long an equivalent security. Equivalent securities include rights, warrants, and other securities issued by the company that is the subject of the tender offer, which are immediately convertible into or exchangeable or exercisable for the subject security. Under tender rules, unexercised, standardized call options are not equivalent securities.

All of the following trades would fall under the jurisdiction of the SEC, EXCEPT a: A) Sale of stock in a U.S. company by a broker-dealer in Paris to an investment fund in Geneva B) Trade of stock in a foreign company between a broker-dealer in Ohio and institutional customer in Puerto Rico C) Sale of stock in a foreign company by a customer in London to a broker-dealer in West Virginia D) Trade of stock in a foreign company between a customer in New Mexico and a broker-dealer in the Virgin Islands

A) Sale of stock in a U.S. company by a broker-dealer in Paris to an investment fund in Geneva The Securities and Exchange Commission has jurisdiction in matters involving interstate commerce in cases where at least one party to the transaction is located in a state, possession, commonwealth, or territory of the United States.

The board of directors wants to take a public company private. The required filing is: A) Schedule 13E-3 B) Schedule 13D C) Form 3 D) Form 4

A) Schedule 13E-3 SEC Rule 13e-3 applies to going private, a transaction by issuers of publicly traded securities. The issuer is required to file a Schedule 13E-3 with the SEC.

An issuer has changed the accounting firm that certifies its financial statements. Which of the following statements is TRUE? A) The issuer is required to file Form 8-K within four business days B) The issuer is required to file a revised 10-Q within 24 hours C) The new accounting firm is required to file Form 8-K immediately D) The issuer is required to file Form 8-K within 24 hours

A) The issuer is required to file Form 8-K within four business days All companies that are registered with the Securities and Exchange Commission (SEC) are required to file Form 8-K for current reporting, when a material event occurs that would affect its financial condition or the value of its shares, and that would be deemed of significant interest to the public. The issuer is required to file a Form 8-K within four business days, unless the announcement is based on an inadvertent leak of material information. In such cases, Regulation FD requires the filing of Form 8-K, within 24 hours, as one of the means of disclosing the information to the public.

A person who acquires more than 5% of the equity securities of a company registered under the Securities Exchange Act of 1934 must notify all of the following entities and/or persons, EXCEPT the: A) Exchanges on which the securities are traded B) Shareholders of the company C) SEC D) Issuer

B) Shareholders of the company Section 13(d) of the Exchange Act requires anyone who acquires more than 5% of an issuer's equity securities to notify: -The issuer -Each exchange on which those securities are traded -The SEC Since the issuer is notified, shareholders need not be notified directly. There is also no need to notify the media.

An investment banking firm is advising a client regarding the sale of one of its businesses by way of a bidding process. The board of directors of the company has asked your firm to provide a fairness opinion on the transaction. If your firm has already agreed to provide stapled financing to the winning bidder, which of the following statements is TRUE? A) The firm may prepare the fairness opinion if it agrees not to provide financing to the winning bidder B) The firm may provide both the fairness opinion and the financing, if it discloses the material relationship C) The firm is not permitted to provide the fairness opinion D) The firm may provide both the fairness opinion and the financing, if it discloses the source of the financing

B) The firm may provide both the fairness opinion and the financing, if it discloses the material relationship he fairness opinion is rendered to determine whether the proposed transaction price is fair (within a reasonable range of prices). When preparing a fairness opinion that will be distributed to public shareholders, regulators require that all existing conflicts of interest be revealed. All material relationships must be disclosed, such as those that include contingent compensation from related transactions. When an investment bank advising the seller in an M&A transaction has agreed to provide financing to the firm that wins the bid, it is known as stapled financing. Stapled financing is an acceptable business practice. The origin of the name for this practice is based on the stapling of the loan commitment to the offering documents provided to potential bidders.

A managing director in the M&A Department has asked you to gather information on the identity and background of a group that has just acquired 7.5% of a company's stock with the intent to influence the issuer. Which of the following forms would be BEST to review? A) A proxy statement B) Form 8-K C) Schedule 13D D) Schedule 13G

C) Schedule 13D Section 13(d) of the Securities Exchange Act requires anyone who acquires more than 5% of an issuer's equity securities to notify the issuer, the exchange where the securities are traded, and the SEC, within 10 days. Schedule 13D is filed by persons who may intend to influence or control the issuer, while a Schedule 13G is (usually) filed by institutional investors (e.g., a mutual fund company) that have no intention to influence or control the issuer. The background and identity of the person or group is disclosed in this schedule.

Which of the following statements is TRUE regarding an SEC trading suspension? A) The SEC may suspend trading only with SRO approval B) Trading suspensions may be issued only if fraud is suspected C) The SEC may suspend trading on an exchange for up to 90 days D) The SEC may suspend trading for up to 20 business days for an individual issue

C) The SEC may suspend trading on an exchange for up to 90 days The federal securities laws allow the SEC to suspend trading in any stock for up to 10 trading (business) days and to close an exchange for up to 90 calendar days. An individual stock trading suspension commonly occurs when public information about the company is not current, adequate, or accurate. The suspension of all trading on an exchange are infrequent but may be enacted if a catastrophic event occurs. An exchange suspension does not take effect unless the Securities Exchange Commission notifies the president of its decision and the president notifies the Commission that he does not disapprove of such decision.

When an issuer buys back equity securities in the open market, Rule 10b-18 provides a safe harbor from liability for manipulation as long as the issuer satisfies all of the following conditions, EXCEPT when the issuer: A) Does not make purchases during the last 10 minutes of the trading day for actively traded securities or in the last 30 minutes of trading for all other securities B) Makes only one block purchase a week C) Uses only one broker-dealer to effect purchases in a given day including the after hours session D) Limits purchases of its stock to 25% of the ADTV

C) Uses only one broker-dealer to effect purchases in a given day including the after hours session In order to be eligible for the safe harbor under Rule 10b-18, there are four main conditions that must be met. These conditions include using only one broker-dealer to effect purchases at a time, the time the purchases take place in the market, the price at which the trade takes place, and the volume of shares being purchased every day. The issuer may purchase up to 25% of the securities' Average Daily Trading Volume (ADTV), which is the average of the preceding four weeks of trading volume. Because an issuer is permitted to use one broker-dealer during the normal trading day and another broker-dealer in the after-hours market. This answer is an incorrect statement and therefore the correct answer. In lieu of the 25% of ADTV, the issuer may make one block purchase a week in the security. Rule 10b-18 defines a block trade as any trade with a value of $200,000 or more, or a trade of 5,000 shares or more with a value of at least $50,000.

Union First Bank has agreed to purchase Mortgages of America, a company that has nationwide branches of mortgage brokers. The purchase price of the cash deal is valued at $10.30 per share. Which of the following statements is TRUE? A) Union First Bank is required to file Form S-4 with the SEC B) Mortgages of America is required to file Form S-4 with the SEC C) Union First Bank is required to file proxy information on Schedule 14A D) Mortgages of America is required to file proxy information on Schedule 14A

D) Mortgages of America is required to file proxy information on Schedule 14A According to SEC rules, certain information is required in a proxy statement that is filed with the SEC and provided to shareholders. Item 14 on this form concerns mergers, consolidations, and acquisitions. Since the shareholders of the target company will be voting on the terms of the acquisition, the target company is required to file this information, regardless of whether the offer consists of cash, cash and securities, or securities. If the transaction is for cash, the filing of Form S-4 is not required. (Securities will not be issued in connection with the transaction.) Since Union First shareholders will not be voting on the merger, the company is not required to file proxy information on Schedule 14A

According to the Sarbanes-Oxley Act, the CEO and CFO of a publicly traded company must:

Personally certify that the financial information contained in the company's annual and quarterly reports is accurate Sarbanes-Oxley requires the CEO and CFO (or their equivalents) to personally certify that the financial information contained in the company's annual (10-K) and quarterly (10-Q) reports provides an accurate picture of the company's operations during the relevant period. Sarbanes-Oxley does not prohibit the use of financial data calculated in a manner other than according to generally accepted accounting principles (GAAP). However, a company that uses this type of financial data in its required reports or communications with the public must also provide comparable GAAP calculations and reconciliation of the two sets of figures. The company itself (not the SEC) may grant its CEO or CFO a waiver from its code of ethics. The CEO and CFO are also responsible for establishing and testing the company's disclosure controls and procedures, but there is no requirement for outside consultants to perform this function

A managing director has contacted an investment banking representative to ask her to find information on the common stock holdings of a few large hedge funds. The representative should do which of the following?

Search the EDGAR database and retrieve the fund's 13F filings Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings when an institutional investment manager exercises investment discretion over at least $100,000,000 in equity securities. This information is made available to the public through the SEC EDGAR Web site. This form must be filed regardless of whether or not the hedge fund is registered with the SEC

tendering shares (sell)

Shares may only be tendered if an investor is long the stock or its equivalent such as: -A convertible security (conversion NOT required) -A right or warrant (exercise NOT required) -A call option (ONLY if exercised) -Investors may only tender shares that they are net long. ex-a client who is long 1,000 shares of ABC short 3 ABC calls, and long 2 ABC puts is considered net long 700 shares) Short tendering of stock is prohibited (i.e-tendering stock that is borrowed but not owned)

An issuer has changed the accounting firm that certifies its financial statements. Which of the following statements is TRUE?

The issuer is required to file Form 8-K within four business days All companies that are registered with the Securities and Exchange Commission (SEC) are required to file Form 8-K for current reporting, when a material event occurs that would affect its financial condition or the value of its shares, and that would be deemed of significant interest to the public. The issuer is required to file a Form 8-K within four business days, unless the announcement is based on an inadvertent leak of material information. In such cases, Regulation FD requires the filing of Form 8-K, within 24 hours, as one of the means of disclosing the information to the public.

An investment banker is approached by the CEO of XAM, a Nasdaq-listed company. The CEO has inquired whether XAM is permitted to extend a personal loan to her. Which of the following statements is the BEST response for the investment banker to make to the CEO?

The loan is not permitted under any circumstances The Sarbanes-Oxley Act amended the SEC 1934 Act by prohibiting personal loans or other extensions of credit by an issuer to executive officers and directors.

Schedule 13G Filings

Used as a alternative to filing 13D by passive investors (ex. mutual funds)

Corporate insiders are required to report to the SEC

Within 10 days of their becoming an insider An individual who becomes an insider is required to report this fact to the SEC within 10 days of becoming an insider by filing Form 3

Schedule 13(f) Filings

a quarterly report detailing all positions held by institutional investment managers that exercise investment discretion over at least $100 million in equity securities.

Insiders

any officer or director of the issuer or greater than 10% owner. Insiders must: -file Form 3 with the SEC within 10 days -file Form 4 to report purchases and sales within 2 business days, however there is no required filing for certain transactions within a 401k plan. Insiders are prohibited from: -Engaging in short sales of their company stock -Retaining short swing profits (stock held less than 6 mths)