On two successive days, the SEC brought settled enforcement actions against issuers for failure to report sales of unregistered securities. Under Item 1.01 of Form 8-K, a registrant must disclose its entry into a material definitive agreement, not made in the ordinary course of business of the registrant, that provides for obligations that are material to and enforceable against the registrant. Under Item 3.02 of Form 8-K, certain unregistered sales of equity securities must be reported. Likewise, under Item 2 of Form 10-Q, a registrant must furnish the information required by Item 701 of Regulation S-K as to all equity securities of the registrant sold by the registrant during the period covered by the report that were not registered under the Securities Act unless it was previously included in a Current Report on Form 8-K.
In an action against Connexus Corporation, the SEC noted in one instance “Connexus failed to file a Form 8-K with the Commission within four business days of a financing agreement becoming enforceable against it” and that “In its Form 10-Q covering the period ended September 30, 2013, Connexus failed to disclose the financing agreement and the sale of unregistered equity securities.”
The SEC did not allege any fraudulent activity, just failure to make required filings. The sales of unregistered securities appeared to be particularly material, and in one instance included “an amount of common stock in excess of 600 percent of the last reported number of common stock issued and outstanding.” Connexus agreed to pay a civil penalty of $50,000.
In an action against Bluefire Renewables, Inc., the SEC describes a transaction on December 9, 2013, where Bluefire sold shares of its common stock to a financing company in an unregistered transaction where Bluefire was required to issue an amount of common stock in excess of 100% of the last reported amount of common stock issued and outstanding. The SEC again alleges “Bluefire failed to file a Form 8-K with the Commission within four business days of the financing agreement becoming enforceable against it.” Again, no fraudulent activity was alleged. Bluefire agreed to pay a civil penalty of $25,000.
Neither issuer admitted or denied the SEC’s findings.
[Update: On September 30, 2016, the SEC announced a third enforcement action for failure to report sales of unregistered securities.]