June 24, 2002
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street
Washington, D.C. 20549
File No.: S7-09-02; Comments on Proposed Form
Dear Mr. Katz:
We are submitting this comment letter in response to the Securities and Exchange Commission Release dated April 12, 2002, regarding the proposal to require Form 8-K disclosure of certain management transactions.
The Release proposes to amend Form 8-K to require companies whose securities are registered under Section 12 of the Exchange Act to report certain information regarding directors' and executive officers' transactions in company equity securities, Exchange Act Rule 10b5-1 arrangements and loans made or guaranteed by a company in a Form 8-K. As proposed, reports of transactions and loans with an aggregate value of $100,000 or more would be due within two business days. Transactions and loans with a smaller aggregate value, employee benefit plan grants, and awards and Rule 10b5-1 arrangements, would be due by the close of business on the second business day of the following week.
We strongly urge the SEC not to implement these proposed amendments, as currently written, for the reasons provided below.
The proposed Form 8-K amendment would create a significant burden for companies. Because of the extremely limited time period in which a company would have to file a Form 8-K, it would need to implement procedures and coordinate a data system with directors and executive officers and their brokers, plan administrators and trustees to obtain prior notice of all stock activity and to closely track every stock transaction involving its executive officers and directors. To compile and report this information within such short time frames would place a significant reporting burden on public companies, with tremendous opportunity for breakdown in a company's receipt of up-to-the-minute information regarding reportable transactions.
Adjusting a company's reporting mechanism to a shorter time frame would also increase a company's costs of reporting as well as require additional human resources or executive compensation staff time to monitor these equity transactions. In addition, the costs of company counsel would increase due to the increased need for filing preparation within limited time periods.
A company's report of a transaction would not relieve a director or executive officer from the obligation to report that same transaction under Section 16(a) on Form 4 or Form 5, or to file a notice of proposed sale on Form 144. In many instances, the reporting obligations would be duplicated. This replication would only increase companies' administrative and reporting burden and costs.
The Release states that the purpose of the proposed changes is to protect investors and promote fair dealing in a company's securities by enabling investors to make informed decisions on a timely basis. Generally, it is difficult to interpret directors' and executive officers' views of the performance or prospects of a company based on their equity transactions, because stock transactions are often initiated due to independent reasons. For example, sales and option exercises are often motivated by the fact that a public company's limited trading windows are then "open"; the need to pay college tuition or housing costs; the need to plan for option termination dates; and, pursuant to Rule 10b5-1 plans, the fact that the company's stock price reached or exceeded a certain pre-determined level. Further, directors and executive officers are frequently unaware of trust transactions effected by trustees.
If any change is to be made, we strongly recommend adjusting what transactions may no longer continue to be reported only on an annual Form 5, and, rather, to be required in the future to be reported on a monthly basis on Form 4.
The current system has not been the source or the means by which the current corporate governance crisis has come about. We should not make the mistake of implementing an overreaching and burdensome reporting and administrative system due to the mistakes of the well-publicized transactions of a few. In this case, a company's reporting burden and associated costs would significantly outweigh investors' informational needs.
Very truly yours,
/s/ Warren J. Casey
WARREN J. CASEY