Correcting Form 4 Mistakes
February 23, 2022
Making timely and accurate Form 4 filings as required under Section 16 of the Securities and Exchange Act can be complex. Ideally, a company has a process in place to mitigate the risk of erroneous data ending up on a Form 4.
However, if an error is discovered, it may be necessary to amend the original filing, along with a footnote explaining the reason for the amendment.
What is a Form 4 and When Does it Need to be Filed?
Form 4 is a "Statement of Changes in Beneficial Ownership," required to be filed with the Securities and Exchange Commission by a company insider when they have a change in their beneficial ownership of the company's stock.
The Form 4 is a mandated disclosure under Section 16(a) of the Securities and Exchange Act, which is intended to inform people about an insider's transactions in and holdings of issuer securities. The Form 4 must be filed within two business days of the transaction date.
Most times, the company handles the administrative process for the Form 4 filing on behalf of the insider.
What Happens When an Error on the Form 4 is Discovered?
When errors are made in Form 4 filings, it's likely that an amended version of the Form 4 will need to be filed with the SEC to correct the mistake.
When filing an amended Form 4, the amended Form 4 should include only the line items that are being updated. In addition, the amended filing should include a footnote explaining the nature of the amendment.
Additionally, in most cases there is no need to amend subsequent Form 4 filings that occurred between the original error and the amendment, even if the original error is also reflected in these filings. Often, simply updating the next Form 4 filing with correct information is acceptable.
If the amendment is filed after the deadline that applied to the original filing, the company will need to determine if the late filing must be disclosed in the proxy statement per the requirements of Item 405 (which requires disclosure of late reports and known failures to file required reports).
The following addresses a few common Form 4 reporting errors. Your legal counsel can confirm the appropriate action to take when it comes to specific errors in a Form 4 filing.
Form 4 Error #1: Reporting of a Duplicate Grant
If a grant is inadvertently reported twice, removing the duplicate can be done by filing an amended Form 4 with the correct details of the grant along with a footnote clarifying that the grant was reported twice. There is no need to show a "disposition" of the erroneous duplicate.
Form 4 Error #2: Listing an Incorrect Grant Type
If a Form 4 is filed with an incorrect title of derivative security listed in Column 1 of Table II, a correction can be made by filing an amended Form 4 with the correct grant type in Column 1 and a footnote to explain the discrepancy.
This is not the same as modifying an existing grant, which is sometimes considered a disposition of the original grant and acquisition of a new grant.
In the case of an incorrect ISO/NQ split, if all the other details on the grants (grant date, exercise price, etc.) are the same, then both the ISO portion of the grant and the NQ portion of the grant can be reported on the same line and a correction to share allocation between the two may not require an amendment.
Form 4 Error #3: Fixing an Incorrect Number of Securities Beneficially Owned
If there was an error in the number of shares reported in Column 5 of Table I or Column 9 of Table II, the amended filing is simple, as long as the total holdings are not incorrect because of an error in or omission of an actual transaction.
In this case, an amendment with the correct holdings can be filed with a footnote explaining the correction.
Likewise, if holdings are incorrectly reported as directly or indirectly held, the same amendment filing would apply. Even if the issue is simply that direct holdings are reported as indirect (or vice versa), it may be best to file an amended Form 4 to show both line items with the correct number of shares.
It's also important to note that the number of shares reported in Column 9 of Table II should only reflect the total of the same class as the derivative security being reported on that line, not the total number of all derivative securities held by the filer.
What to do About Immaterial Form 4 Reporting Mistakes
Some errors may not require an amended Form 4 because they are not material enough to warrant an amendment. In assessing whether an error is material, Alan Dye of Hogan Lovells and Editor of Section16.net, suggests considering the following questions:
Does the error have any potential to mislead investors about something that is important to the purposes of Section 16(a)?
Was transactional information reported correctly?
Did it accurately report the insider's status as an officer or director?
Where a Form 4 has reported transactional information and beneficial ownership information correctly, and also has reported the insider's officer status, it's likely reasonable to assume that investors will not consider it material. This would mean no amendment to the Form 4 would be required.
Of course, it’s best to work closely with legal counsel to determine the most appropriate course of action in each case.
Examples of some details that most likely would not require an amended filing are:
using the incorrect title for the insider
including an incorrect mailing address
failing to disclose that a transaction took place under a Rule 10b5-1 Plan (though the SEC has proposed an amendment to Rule 10b5-1 that would require such reporting, it’s not an official rule yet.)
accidentally putting the wrong vesting schedule in a footnote.
While it can seem scary to make a mistake on a public disclosure such as a Form 4 filing, correcting most mistakes is often a straightforward process.
As a reminder, check with legal counsel on the right course of action in correcting material Form 4 errors.
More Section 16 Reporting Resources
NASPP members can find additional Section 16 reporting information in the following webinars:
2022 Section 16 Developments With Alan Dye
2021 Section 16 Developments with Alan Dye
Members of Section16.net can access more information on common Section 16 form errors along with guidance on correct reporting and best practices.