DEFINITION of Form 5
Form 5 is a document that company insiders must file with the Securities and Exchange Commission (SEC) if they have conducted transactions during the year that they did not previously report via a Form 4. (Insiders file Form 4 when a material change occurs in their holdings.)
BREAKING DOWN Form 5
SEC Form 5 requires the following:
- The name and physical address of the reporting person
- The issuer name and stock ticker
- A statement for the issuer's fiscal year ended (month/day/year)
- If Form 5 is an amendment, the date that the original form was filed (Month/Day/Year)
- The relationship of the reporting person(s) to the issuer (e.g., director, 10% owner, officer, or other)
- If this is individual or joint/group reporting
- A list of the securities, transaction dates, deemed execution dates, transaction codes, amount of securities owned at the end of the issuer’s fiscal year, a note of direct or indirect ownership, and the nature of indirect beneficial ownership
Form 5 submissions are due to the SEC no later than 45 days after the company's fiscal year ends, or within six months after an insider ends his or her affiliation with the company. Form 5 is also related to SEC Form 3, which tracks all company insiders. Each company insider must file Form 3 no later than 10 days after she or he becomes affiliated with a company.
Form 5 and Insider Trading
Form 5 helps to prevent illegal insider trading through disclosure. (Insider trading is the buying or selling of a security by someone who has access to material nonpublic information about the security.) If the insider makes the trade when the material information has not been announced, the trade is illegal.
For example, in July 2018, a Boston federal jury found Schultz Chan and Songjiang Wang, who worked at Akebia Therapeutics and Merrimack Pharmaceuticals Inc., respectively, guilty of insider trading. Both Chan and Wang denied the charges; however, prosecutors said that from 2013 to 2014, Wang delivered proprietary information about Merrimack’s positive drug studies to Chan, prior to the Cambridge, Massachusetts-based company’s public announcement of the results. With the knowledge, Chan and his wife made several purchases of Merrimack stock. In one instance the couple made $136,000.
While filing Form 5 cannot fully avoid illegal insider trading, it is one step towards making individuals and organizations more accountable.