Corporations must recognize that they are responsible for their employees' "insider" trades. The ramifications associated with this responsibility are illuminated by the SEC changes to Section 16 of the Securities Exchange Act of 1934 that take effect on May 1. The major thrust of the Section 16 revision is to force corporate insiders to file reports of a stock purchase or sell in a timely manner.
Up until now, the Securities and Exchange Commission has been extremely patient with regard to the haphazardness that seems to go hand-in-hand with this reporting requirement.
As it illustrated in its response to infamous Wall Street sharks like Ivan Boesky, the SEC recognizes the need for greater controls in the overall securities arena. In fact, the Insider Trading and Securities Fraud Enforcement Act adopted in 1988 specifically addresses trading on insider information.
Now, changes to Section 16 focus the SEC'S probing eye on the area of insider reporting requirements as well as short-swing liability.
WHAT IS AN INSIDER?
As a starting point, Section 16 establishes new criteria to determine exactly who is an insider. Simply stated, the new regulation defines an insider as a person in charge of a principal business unit, division or function, as well as any person who sets policy.
For example, a bank might have a number of vice presidents, but this title does not automatically mean that …