SEC: Execs Can't Trade Co. Stock if Participants Can't Either

January 15, 2003 (PLANSPONSOR.com) - Corporate executives won't be able to trade company stock if employees in a pension or retirement plan can't do so, the US Securities and Exchange Commission (SEC) ruled on Wednesday.

According to the rules generated as part of sweeping post-Enron investment reforms, corporate executives, board members, and their immediate families cannot buy or sell company stock or trade options if more than half of the firm’s employees face a blackout on trading for more than three consecutive business days, Dow Jones reported.

Companies must alert executives, board members and the SEC to an impending blackout period. Executives who break the new rule could be sued by the SEC and forced to return any trading profits, Dow Jones said.Pension blackouts occur when firms make changes to retirement savings plans, such as hiring a new recordkeeper.

Only securities bought or sold by corporate executives and officers in connection with their employment or service on the board are covered by the new restrictions. The SEC will exempt some trading from restrictions, including automatic and prearranged sales or purchases, or those required under a court order, Dow Jones reported.

Non-US firms are covered by the rule if a blackout affects US employees. Specifically, the rule applies to non-US firms if 50,000 or more employees in the US are subject to a blackout, or if the affected US employees account for more than 15% of the firm’s total workforce, Dow Jones said.

Congress ordered new blackout trading rules as part of a sweeping reform bill adopted last summer in the wake of what happened at Enron. (See  Blackout Rules Ride With Accounting Reforms ).

Enron had a trading blackout in effect for several weeks in the fall of 2001 as the company was changing its retirement plan administrator. The blackout, which came amid reports of accounting fraud at Enron, left employees unable to trade at a time executives were free to dump shares in the troubled Houston energy company, Dow Jones said.

Outgoing SEC Chairman Harvey Pitt said the agency’s hands aren’t tied if it discovers executives are exploiting the three-day loophole. In such cases, “investors would not be left without a remedy,” Pitt promised, according to the Dow Jones story.

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