Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC charged 29 officers, directors, or major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock.  Seven publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies.

35 of the 36 agreed to settle the charges in exchange for penalties ranging from $25,000 to $375,000.  The one that didn’t settle will be subject to administrative proceedings on the SEC rocket docket.  It’s important to remember that those who settled did not admit or deny the allegations.

The SEC announced the actions in two press releases, one addressing 34 of the actions where the failure to file may have been more inadvertent, and another one charging two defendants, where the failures may have been more egregious.  Or maybe there were just two different enforcement teams involved and one drove a harder bargain.  Actually, the SEC sent out three press releases (or maybe more accurately, e-mails), and appeared to be confused themselves, because the third mixed up the captions and text of the two announcements.

The SEC used quantitative analytics to identify individuals and companies with especially high rates of filing deficiencies.

The SEC enforcement initiative focused on failure to file two types of ownership reports:

  • Form 4 is a report that corporate officers, directors, and certain beneficial owners of more than 10 percent of a registered class of a company’s stock must use to report their transactions in company stock within two business days.
  • Schedule 13D and 13G are reports that beneficial owners of more than 5 percent of a registered class of a company’s stock must use to report holdings or intentions with respect to the company.

There are important lessons for everyone to learn from these actions:

  • The SEC doesn’t care if officers and directors advised the issuer in a timely manner of their transactions and the issuer failed to file the report.  The SEC will charge the officer and director anyhow, because it is their responsibility to file.  Then the SEC will go out of its way to point out that the officer or director failed to monitor whether the filings were made.
  • Most issuers undertake to assist their officers and directors in making the filings.  Just because you do it gratuitously doesn’t mean you can be sloppy.  The SEC takes the position that the issuer’s negligence is a cause of the Section 16 violation.  Meaning the issuer gets charged with the officer or director.
  • The SEC will not hesitate to charge issuers with disclosure violations for failure to disclose late Form 4’s which are required to be disclosed pursuant to Item 405 of Regulation S-K.


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