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The SEC has recently announced settlement of enforcement actions targeting violations of beneficial reporting requirements under Section 13(d) of the Act.

In one of the most recent actions (available here), the SEC’s Enforcement Staff brought proceedings against certain shareholder activists and their affiliate for failing to properly disclose beneficial ownership information during a series of campaigns to influence or exert control over certain microcap companies.

According to the SEC’s release, the activist group “collectively owned more than five percent and sometimes even more than 10 percent of the companies’ outstanding common stock, yet the required ownership filings to disclose that information to the investing public were either incomplete, untimely, or altogether absent.” Without admitting or denying the findings, the parties consented to the SEC’s order and agreed to penalties ranging from $30,000 and $180,000.

Section 13(d) requires any person or group who directly or indirectly acquires beneficial ownership of more than five percent of an issuer’s equity securities to make a filing with the Commission disclosing information relating to such beneficial ownership within 10 days of the acquisition including:

  • the identity of the acquirer;
  • a description of the purpose(s) of the acquisition (including any plans (i) to affect the issuer’s Board of Directors; (ii) to cause an extraordinary corporate transaction, such as a merger, reorganization, or liquidation; (iii) to sell or transfer a material amount of assets of the issuer or any of its subsidiaries; or (iv) to otherwise materially change the issuer’s business or corporate structure); and
  • the interests of all persons making the filing, including those acting together as a group.

As such, filings made pursuant to Section 13(d) provide material information about the holdings of significant shareholders and their ownership intent which allows shareholders to consider how these parties could exert control, influence, or otherwise impact investments in a given security.

The SEC’s announcement of the settlements is a clear sign that the Staff is taking a close look at Section 13(d) reporting in the context of proxy battles where omission of information about the parties involved could have a significant result. And it should be of no surprise that the staff of the Division of Corporation Finance’s Office of Mergers and Acquisitions was involved in an advisory role in helping to pursue the violations. As the primary reviewer of proxy contests, Corp Fin’s OM&A group are experts in interpreting the proxy rules and beneficial reporting requirements of Schedule 13D/G filings.

These recent cases underscore the SEC’s focus on ensuring a level playing field in proxy battles and should serve as a warning to all participants in proxy fights that they need to actively comply with all beneficial ownership reporting requirements.