From: laren [laren1234@earthlink.net] Sent: Tuesday, May 07, 2002 1:44 PM To: rule-comments@sec.gov Subject: File No. S7-09-02 Re: Proposed 8-K Disclosure of Insiders' Transactions In general, the proposals provide a good, quick solution to improve the disclosure of insiders' transactions. The following are my principal comments. I am submitting this letter early in the process so that the Staff has time to work on these items now in order to avoid further delays in the adoption of the final rules . 1. A Separate Form. For ease of access to the information, the public should not have to search all 8-Ks to see whether there is an Item 10 disclosure. Creating a separate Form should be a simple solution. 2. Sanctions. The rule needs teeth. There should be a clear statement that: (a) All filing delinquencies must be disclosed in a captioned section of the proxy statement (like the current Item 405 disclosure). (b) Three Bites. There should be some kind of statement that any issuer that has, say, 3 filing delinquencies during its fiscal year is subject to losing S-3 etc. qualification, in the discretion of the Staff, notwithstanding the existence of a compliance program. (c) There should be a space on the cover page of the Form to indicate, yes or no, whether it covers any late filings. The Form should also indicate whether the filing is for a 2-day event or a next-week event. (d) There needs to be a sanction for the insider as well. For example, any insider with a late filing should not be able to sell any additional shares under Rule 144 until, say, one week after the delinquent filing has been made. After all, in most cases the insider will be the cause of the late filing. (This could be viewed as the insider equivalent of the Rule 144 current information requirement: if the public does not have current information about the insider's previous sales, then that information has to be brought current before that person can sell.) The staff could modify the current proposed amendment to Rule 144(c)(1) to provide that: "For any seller whose transactions are subject to Item 10 reporting, the issuer would not be deemed current with respect to that seller if there are any outstanding unreported transactions for the seller, and then not until five business days after the Item 10 filing delinquencies for that person have been cured." Having a consequence that will affect insiders directly should cause insiders to take a greater interest in the timeliness of their filings. (To help ensure compliance, brokers could easily add this to their Rule 144 checklists.) 3. Consistent Definition of Insider. The definition of executive officer needs to be the same for everything. This means that the expanded Section 16 definition should apply here and in Rule 144. And, all those persons must be listed in the 10-k. There should also be a prominent statement in the new rule about inclusion of family members, etc. (another area where there have been abuses). 4. Rule 10b5-1 Plans. There is need for disclosure of 10b5-1 plans somewhere. In any event, there should also be a column in the Form reporting a sale or purchase to indicate whether it is pursuant to a 10b5-1 plan, (A footnote could then provide the basic details of the plan.) [Note the Staff needs to clean up the required information here so that all the information required when a modification is reported is provided in the initial filing (right now that is not the case). 5. Loans. There is a glaring omission here. The rule needs to make very clear that all loans by third parties (including banks and brokerage firms) that are secured by company stock must be reported. Investors are entitled to know when there is a potential sale that could be triggered, for example, by a margin call. Such sales have, at times, had significant impact on falling market prices in some companies. In fact, some companies have policies that prohibit insiders from pledging company stock. 6. Non-Section 12 Issuers. Another glaring omission is giving a pass to the most speculative companies. It is these very companies that often have the greatest number of insider trading violations. Why allow those companies and those insiders to avoid current reporting of their transactions, which deserve more, not less scrutiny? 7. Standardize The Form. For ease of investor access and consistent reporting, require a standardized tabular format for each type of reportable event. Because time is of the essence in getting the new filing requirement adopted, the Staff might want to wait on this. 8. Combine This and Form 144 and Form 4. Again, this would be a second step. I have some suggestions that I would be happy to share to eliminate all the duplication and overlap, 9. A Burden? The benefits of the new disclosure and compliance requirements outweigh the additional burdens. As someone who has some experience in developing compliance programs for issuers and brokerage firms, and yet someone who passionately hates waste of time and resources, I am confident that there are relatively simple ways to minimize the burdens here. JESSE M. BRILL