House Passes Legislation Easing Rules for Stock Sales to Employees

Currently, under Rule 701 of the Securities Act, companies can offer employees stock to purchase as part of compensatory benefit plans for up to $5 million or 15% of the total stock, whichever is less, during a 12-month period. The offerings must be discrete (not included in any other offer) and are still subject to disclosure requirements. For total sales under $5 million during a twelve-month period to the specified class of people above, companies must comply with anti-fraud disclosure rules; for sales over this amount, companies must disclose additional information, including risk factors, copies of the plans under which the offerings are made, and certain financial statements. These disclosures must be made to all shareholders.

The House has now passed H.R. 1675, the Capital Improvements Act, one title of which would revise Section 230.701(e) of title 17, Code of Federal Regulations, to increase that amount to $10 million, indexed to inflation to the nearest $1 million.  The bill passed by 265-159 and now moves to the Senate. The bill is strongly opposed by the Administration over other provisions in the bill that lower reporting, oversight, and disclosure requirements for companies and financial institutions. A presidential veto has been promised.