CEP Legal & Regulatory Compliance 2 — Questions and Answers
Question 1: Under Rule 10b5-1, a trading plan must be established when the insider is:
- In possession of material nonpublic information
- Not aware of any material nonpublic information (Correct answer)
- After the quarterly earnings are released
- During the company's open trading window
Correct answer: Not aware of any material nonpublic information
Rule 10b5-1 plans must be adopted when the insider does not possess material nonpublic information to provide an affirmative defense against insider trading allegations.
Question 2: Which SEC form must be filed within two business days of a Section 16 officer acquiring company equity securities?
- Form 4 (Correct answer)
- Form 3
- Form 144
- Form S-8
Correct answer: Form 4
Form 4 must be filed within two business days of any change in a Section 16 insider's beneficial ownership of company equity securities.
Question 3: The short-swing profit rule under Section 16(b) applies to profits realized from a purchase and sale (or sale and purchase) of company securities within:
- Three months
- Six months (Correct answer)
- One year
- Ninety days
Correct answer: Six months
Section 16(b) requires disgorgement of profits from any purchase and sale, or sale and purchase, of company equity securities within any six-month period by covered insiders.
Question 4: Which Dodd-Frank Act provision requires companies to implement a clawback policy for executive compensation?
- Section 953(a)
- Section 954 (Correct answer)
- Section 951
- Section 956
Correct answer: Section 954
Dodd-Frank Section 954 requires listed companies to adopt policies to recover incentive-based compensation from current and former executives following an accounting restatement.
Question 5: Under IRC Section 409A, which of the following is NOT a permissible payment trigger for deferred compensation?
- Separation from service
- Change in control
- Employee's request for early withdrawal (Correct answer)
- Disability
Correct answer: Employee's request for early withdrawal
IRC Section 409A limits permissible distribution events to separation from service, disability, death, change in control, unforeseeable emergency, and a fixed date — not elective early withdrawals.
Question 6: A company's equity plan must receive shareholder approval for material amendments under which exchange listing requirement?
- NYSE Rule 303A.08 / Nasdaq Rule 5635(c) (Correct answer)
- SEC Rule 16b-3
- IRC Section 422
- ERISA Section 404
Correct answer: NYSE Rule 303A.08 / Nasdaq Rule 5635(c)
NYSE Rule 303A.08 and Nasdaq Rule 5635(c) require shareholder approval for material revisions to equity compensation plans.
Question 7: Which registration form is used to register securities to be offered to employees under equity compensation plans?
- Form S-1
- Form S-8 (Correct answer)
- Form S-3
- Form 10-K
Correct answer: Form S-8
Form S-8 is the SEC registration form specifically for securities to be offered to employees under benefit and compensation plans, including stock option and ESPP plans.
CEP Legal & Regulatory Compliance 2
Under Rule 10b5-1, a trading plan must be established when the insider is: