Form 5

The Rules

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 stock)
• 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 (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.”