§7244 — Title 15 Commerce and Trade | U.S. Code

Summary

Directors and top officers must not buy, sell, or move their employer’s stock while a retirement-plan “blackout period” is in effect if they got those shares because of their job. Any profit from a forbidden trade must be returned to the company. The company can sue to get the profit back, or a shareholder can sue for the company’s benefit if the company does not act within 60 days. Lawsuits must be started within 2 years after the profit was made. The issuer must tell the officer and the SEC about the blackout in a timely way. A “blackout period” is any time longer than 3 consecutive business days when at least 50% of participants in all individual-account plans cannot trade the employer’s stock. An “individual account plan” is the plan type named in 29 U.S.C. 1002(34), excluding one-participant plans. The SEC, working with the Labor Secretary, will make rules (including limits, clarifications, and possible narrow exceptions such as dividend reinvestment or advance election trades). The Labor Secretary had to issue initial guidance and a model notice by January 1, 2003, and interim final rules within 75 days after July 30, 2002. The rules took effect 180 days after July 30, 2002, and acting in good faith before rules were issued counts as complying.

Title 15, §7244

Commerce and Trade — Source: USLM XML via OLRC

(a)(1)Except to the extent otherwise provided by rule of the Commission pursuant to paragraph (3), it shall be unlawful for any director or executive officer of an issuer of any equity security (other than an exempted security), directly or indirectly, to purchase, sell, or otherwise acquire or transfer any equity security of the issuer (other than an exempted security) during any blackout period with respect to such equity security if such director or officer acquires such equity security in connection with his or her service or employment as a director or executive officer.

(2)(A)Any profit realized by a director or executive officer referred to in paragraph (1) from any purchase, sale, or other acquisition or transfer in violation of this subsection shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such director or executive officer in entering into the transaction.

(B)An action to recover profits in accordance with this subsection may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer fails or refuses to bring such action within 60 days after the date of request, or fails diligently to prosecute the action thereafter, except that no such suit shall be brought more than 2 years after the date on which such profit was realized.

(3)The Commission shall, in consultation with the Secretary of Labor, issue rules to clarify the application of this subsection and to prevent evasion thereof. Such rules shall provide for the application of the requirements of paragraph (1) with respect to entities treated as a single employer with respect to an issuer under section 414(b), (c), (m), or (o) of title 26 to the extent necessary to clarify the application of such requirements and to prevent evasion thereof. Such rules may also provide for appropriate exceptions from the requirements of this subsection, including exceptions for purchases pursuant to an automatic dividend reinvestment program or purchases or sales made pursuant to an advance election.

(4)For purposes of this subsection, the term “blackout period”, with respect to the equity securities of any issuer—

(A)means any period of more than 3 consecutive business days during which the ability of not fewer than 50 percent of the participants or beneficiaries under all individual account plans maintained by the issuer to purchase, sell, or otherwise acquire or transfer an interest in any equity of such issuer held in such an individual account plan is temporarily suspended by the issuer or by a fiduciary of the plan; and

(B)does not include, under regulations which shall be prescribed by the Commission—

(i)a regularly scheduled period in which the participants and beneficiaries may not purchase, sell, or otherwise acquire or transfer an interest in any equity of such issuer, if such period is—

(I)incorporated into the individual account plan; and

(II)timely disclosed to employees before becoming participants under the individual account plan or as a subsequent amendment to the plan; or

(ii)any suspension described in subparagraph (A) that is imposed solely in connection with persons becoming participants or beneficiaries, or ceasing to be participants or beneficiaries, in an individual account plan by reason of a corporate merger, acquisition, divestiture, or similar transaction involving the plan or plan sponsor.

(5)For purposes of this subsection, the term “individual account plan” has the meaning provided in section 1002(34) of title 29, except that such term shall not include a one-participant retirement plan (within the meaning of section 1021(i)(8)(B) of title 29).

(6)In any case in which a director or executive officer is subject to the requirements of this subsection in connection with a blackout period (as defined in paragraph (4)) with respect to any equity securities, the issuer of such equity securities shall timely notify such director or officer and the Securities and Exchange Commission of such blackout period.

(b)(1)

(2)The Secretary of Labor shall issue initial guidance and a model notice pursuant to section 1021(i)(6) of title 29 not later than January 1, 2003. Not later than 75 days after July 30, 2002, the Secretary shall promulgate interim final rules necessary to carry out the amendments made by this subsection.

(3)If any amendment made by this subsection requires an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after the effective date of this section, if—

(A)during the period after such amendment made by this subsection takes effect and before such first plan year, the plan is operated in good faith compliance with the requirements of such amendment made by this subsection, and

(B)such plan amendment applies retroactively to the period after such amendment made by this subsection takes effect and before such first plan year.

(c)The provisions of this section (including the amendments made thereby) shall take effect 180 days after July 30, 2002. Good faith compliance with the requirements of such provisions in advance of the issuance of applicable regulations thereunder shall be treated as compliance with such provisions.

Notes & Related Subsidiaries

Editorial Notes

References in Text

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Amendments

made by this subsection and this section, referred to in subsecs. (b) and (c), see Codification note below. Codification Section is comprised of section 306 of Pub. L. 107–204. Subsec. (b)(1) of section 306 of Pub. L. 107–204 amended section 1021 of Title 29, Labor, and another par. (3) of subsec. (b) amended section 1132 of Title 29.

§7244 Insider trades during pension fund blackout periods