Letter to the Editor

A Clarification

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December 30, 2003

Dear Dave,

Thanks for including a link to an October 30 client alert published by my law firm, Haynes and Boone LLP. You ran this excerpt on December 30:

"[Q]uarterly freezes on trading in a public company's stock, which are timed to coincide with the release of earnings reports and affect the ability of certain participants in the public company's IAP to trade in employer stock under the [401(k) or other individual account plan], are covered by [the DOL Sarbanes-Oxley regulations]. The DoL regulations contain two exceptions to what constitutes a blackout trading period that arguably could apply to these quarterly freezes...."

Since the publication of that alert, I've been able to confirm through informal discussions with representatives from the DOL and the SEC (though unofficially) that, as the rest of the alert suggests, only one of the exceptions applies to exclude regularly scheduled blackout periods used by companies as a prophylactic measure to avoid insider trading problems under Rule 10b-5; the other exception does not apply. The prophylactic company-imposed blackout periods cannot use the first exclusion from the definition of a blackout period in Sarbanes-Oxley Act of 2002 section 306(b)(7)(B)(i) or in the Department of Labor Blackout regulations at section 2520.101-3(d)(1)(ii)(A), because such blackout periods do not occur "by reason of the application of the securities laws" because none of the securities laws require such blackout periods.

Greta E. Cowart

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