Form 5 is part of a trio of SEC forms that corporate insiders
can use to report trades in their companies' shares. The other two, Form 3 and Form 4, announce trades by new and existing corporate insiders, respectively. Form 5 reports insider trades that should have been reported earlier using one of those two other forms, but were not. Oops.
The SEC requires insiders (directors, certain executives
and shareholders who own more than 10 percent of the company) to file a Form 5
if they buy or sell shares and don’t report those transactions on a Form 4. The
Form 5 also is used to report certain transactions that don’t need to be
disclosed in Form 4, such as charitable stock gifts or gifts to family members.
The Form 5 is short — just a half-page or so — and
includes little more than:
- The insider’s name, address and title
The company name
The type of security involved in the transaction (e.g., common
The number of shares bought or sold
Occasional footnotes to explain the nature of the transaction further
Form 5 must be filed within 45 days of the end of the
company’s fiscal year for any un-reported transactions from the previous year.
What to Look For
You can use Form 5 to round out your knowledge of a firm’s
insider trading, but bear in mind that the information is late in getting to
you. A big stock sale by a corporate insider might mean the insider doesn’t
like what he sees happening inside the company — but that news may be hard to
act on if you don’t get it until six months after the fact.
Most firms file Form 5 due to simple oversight, says Ben
Silverman, director of research at InsiderScore, which tracks insider trades. A
company might forget to report an option purchase by a director, or an
executive might not realize a big chunk of shares was sold from a personal
trust. In those cases, a Form 5 would be filed to disclose those transactions.
In fact, most insider transactions worth paying attention
to are recorded on the Form 4, and Silverman says it’s uncommon to see large
and meaningful transactions reported on Form 5. For example, 3M ( href="http://finance.bnet.com/bnet?Ticker=MMM&Page=Quote">MMM) recently
filed more than 20 Form 5s to report stock received by directors and officers
as part of the company’s dividend reinvestment plan — pretty routine stuff.
Still, Silverman says investors keeping tabs on insider
trading would do well to pay attention to a firm’s Form 5 filings. If you come
across a sizable transaction, ask the same questions you’d ask about trades
reported on a Form 3 or Form 4 filing. “It’s another piece of data to look at,”
he says. “More often than not the information won’t be relevant, but it can be
a piece of your due diligence.”
Don’t Miss: The footnotes on a Form 5 often include
more details on the reported transaction, such as when options are
exercisable or how gifts to family members were parceled out.