On September 10, 2014, the Securities and Exchange Commission (“SEC”) announced charges against 28 officers, directors or major shareholders for delinquent Schedule 13D/13G and/or Form 41 filings in violation of federal securities laws requiring them to promptly report information about their holdings and transactions in company stock. The SEC also charged six publicly-traded companies for contributing to filing failures by insiders or failing to subsequently report their insiders’ filing delinquencies.
A total of 33 of the 34 individuals and companies named in the SEC’s orders agreed to settle the charges and pay financial penalties totaling $2.6 million (with individual settlement amounts ranging from $25,000 to $150,000). The filers were identified using quantitative data sources and ranking algorithms designed to identify individuals and companies with especially high rates of filing deficiencies.
According to Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, these charges are intended to send a clear message “about the importance of these filing provisions,” that the SEC will “vigorously police these sorts of violations through streamlined actions” and that “inadvertence is no defense to filing violations.”
Investors and fund managers should remember that, as emphasized by the SEC in its announcement, the requirements under Sections 13(d), 13(g) and 16(a) of the Securities Exchange Act of 1934 to file these beneficial ownership reports apply irrespective of profits or a person’s reasons for acquiring holdings or engaging in transactions. The failure to timely file a required beneficial ownership report, even if inadvertent, constitutes a violation of these requirements. Note that Form 4 filings are generally due within only two business days and that the due dates for Schedule 13D amendments are often uncertain and may be very tight in certain instances, depending upon the circumstances.
In light of these charges and the strong likelihood of subsequent crackdowns on delinquent filers by the SEC, fund managers and other investors are encouraged to review their internal control policies and procedures and to closely monitor issuer developments that may give rise to filing obligations. Fund managers should contact their primary Kleinberg Kaplan attorney with any questions concerning an event or transaction to ensure that their insider transactions are reported to the SEC on a timely basis.
1A Form 4 is a report that officers, directors and 10% beneficial shareholders must file within two business days to disclose their transactions in a registered class of an issuer’s securities (generally, publicly traded stock). Schedules 13D and 13G are statements that beneficial owners of more than 5% of a registered class of an issuer’s stock must file to report their holdings and intentions with respect to the issuer. These forms are intended to keep the public informed as to insiders’ trading in stock and are integral to the SEC’s oversight of potential insider trading and stock manipulation.