Black-out Sarbanes Oxley Act

[Guest ArrowMatt]

Hi. Our ESOP is moving TPA and custodians. We're going to have to black-out the plan for a while and we're going to give notice to the employees are per the Sarbanes Oxley Act. But, I'm being told that we cannot allow our filing executives to exercise stock options during this period. This makes no sense to me. The stock option plan has nothing to do with the ESOP and every employee can exercise stock options during the ESOP black out. Am I going crazy or is the SOX really a crazy Act.

[E as in ERISA]

It may sound craxy at first. But remember that one of the complaints in the Enron case is that while the stock prices plummeted, the employees were blacked out from selling stock in the plan and the executives sold their stock outside the plan. So there are rules that prevent certain execs from selling stock while rank and file employees are blacked out. See Section 306 of Sarbanes Oxley. http://benefitslink.com/laws/hr3673.shtml Make sure your facts meet the rules.

[mbozek]

Blackout periods for trading stock by directors, officers, executives, etc is required under section 306(a) of SOX. It results from ENROn when employees could not sell stock in the 401(k) because of a backout period due to a change in TPAS but executives could sell stock in non qualfied stock plans while the stock declined in value from 13 to 9 a share.

[Guest ArrowMatt]

Wow. This is interesting. I guess the thing that confuses me is that all employees (officers and rank & file) are blacked out of the ESOP but all employees (officers and rank & file) can exercise Stock Options during the blackout. So, if I'm reading this all right, officers can't exercise stock options while rank & rile employees can during the ESOP blackout?

[E as in ERISA]

Well, the executives would most likely be the ones in possession of the "smoking gun" memo from a whistleblower....

[Guest Degrandville]

Are you sure the Sarbanes Oxley Act requires you to give a notice? Generally ESOPs, which have numerous regularly scheduled periods provided for in the plan document during which participants may not diversify or receive a distribution in company stock, are essentially exempt from the Sarbanes Oxley Act because the participants are not effected by the black out period.