SEC Form 4

SEC Form 4 refers to a document submitted to the Securities and Exchange Commission (SEC) by listed companies to disclose any change in insider ownership of securities owning greater than 10% of equity shares of a class. It serves to eliminate illegal trading and bring transparency concerning insider trading.

Every change in ownership of securities has to be reported with the correct transaction code, even if any holding had not undergone net change during the month. Each transaction code indicates the characteristics of the transaction. It has to be filed within two working days after the date of the transaction.

SEC form 4 refers to a document mandated by the SEC for filing by an insider who executes any transaction related to company securities, including price per share in some cases and the amount sold or purchased. Here, insider means significant shareholders, directors, and officers with ownership of more than 10%. 

Further, when these insiders buy or sell their company's security, they must report the transaction using insider trading SEC form 4 within 2 working or business days as per SEC form 4 transaction codes. The form has the complete details of the change in ownership, like the securities type involved, securities amount involved and transaction date. It offers the common masses data on the level of confidence in the company by persons close to its operations. Moreover, failing to disclose the mandatory data in Form 4 may lead to criminal or civil suits. 

Also, the SEC refers cases to different self-regulatory and governmental institutions using the information on Form 4. Anyone can read the Form 4 filings of any company publicly by visiting the SEC's EDGAR database. On the basis of the analysis of data on form 4, anyone like investors or users, regulatory authorities or traders can know about the insider sentiment and make correct investment decisions. SEC ensures investor trust and market integrity through the information of Form 4, settling the dispute of whether SEC Form 4 is good or bad.

Consequently, upholding the principles of transparent and fair markets has been vital. Hence, traders and investors have timely, accurate information about any illegal insider activity save their investments and report the same to the SEC for any fraud.

The key filing requirement is stated below:

• It must be filed by corporate insiders like persons, directors, officers or entities having ownership greater than 10% in a company's stocks.
• It has to be filed as per SEC Form 4 instructions within two business days after the transaction gets completed.
• The form has its content filed with information like trading transactions comprising price per share, nature of ownership modification, and number of shares.

For filing SEC from 4, one has to do the following:

• Collect all relevant and important information.
• All the collected details must be used to file from 4 electronically through the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system of SEC.
• Fully complete the Form 4 filings consisting of 2 pages comprising trading orders and company stock exercise options correctly.
• Submit the filled form 4 to SEC's EDGAR electronically.
• Form 4 must be filed within two working days of the transaction with the Sec.

Let us use a few examples to understand the topic.

Example #1 

An online article published on 15 March 2024 discusses fraudulent schemes comprising fake filings of SEC From 4. Hence, the SEC warns investors through the article regarding scammers who legitimate by utilizing fake form 4 papers. These fraudsters work by posing as regulators or brokers claiming stock ownership or purchases to trick victims into making false fees or tax payments. 

Moreover, the SEC article also stresses that from 4 shall be treated as mere disclosure and not as an authorized confirmation of securities trades advising investors to verify SEC 4 filings through the EDGAR database of SEC. Besides, the SEC also recommends investors check brokers' disclosures and be aware of any suspicious communication coming in its name. Lastly, the SEC also encourages investors to report all doubtful activities to it to avoid to avoid scams of fees.

Example #2

Let us assume that Aran, who is a long-time client of Davis, the broker at XYZ brokerage, has suspicions regarding recent trading conducted in his account. After scrutiny of the account statement, Aran made numerous buys of stock A listed on the Old York Stock Exchange that he never authorized. 

Hence, he confronted Davis regarding the spurious purchases of stocks A. Davis replied to him using a false story that there had been a sudden surge in the price of stock A. If he had not traded it in large quantities, then Aron might have missed the good profits from the trade. As a result, Davis files from 4 to the SEC, which highlights the stock A purchases for Aran. Thus, the SEC investigated Davis's activities and exposed his fraudulent activity.

All these forms work to prevent insider trading and illegal activities but are different from each other as per the table below:

SEC Form 3 Form 4 Form 5

• Gives a statement of beneficial ownership of securities at the initial stage. Reports the changes in securities’ beneficial ownership Represents the securities’ annual statement of beneficial ownership. 
• Has to be filed within 10 days of being designated as an insider or when the company files for registration of equities. Has to be filed within 2 days post-transaction. Has to be disclosed under 45 days post the closure of the company's fiscal year. 
• Tells about the securities' initial ownership by the insiders beyond 10% of the equity securities class. Only reports changes in ownership by insiders in securities’. Any unreported transaction that must have been notified to the SEC and not reported in any other forms of SEC is reported.