Is Your Form 4 Up to Date? SEC Crackdown Targets Delinquent Filers

October 2, 2014
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Securities and Exchange Commission (SEC) Chair Mary Jo White previously warned registrants that no violation was too minor to warrant an enforcement action. The agency recently put her words to action by charging 34 individuals and businesses with neglecting their disclosure obligations under the Exchange Act of 1934.

Exchange Act Filing Obligations

Under the Securities Exchange Act, a material change in the holdings of company insiders triggers disclosure obligations. Section 16(a) requires corporate officers, directors, and certain beneficial owners of more than 10 percent of a registered class of a company’s stock to use Form 4 to report their transactions in company stock within two business days.

A Schedule 13D must be filed within ten days of a holder acquiring beneficial ownership of more than five percent of a class of equity securities that are registered under Section 12 of the Exchange Act. The report must be amended for certain material changes. In lieu of a Schedule 13D, certain investors may be eligible to report on Schedule 13G, which is less burdensome. The disclosure report must be filed with the SEC, and provided to the issuer of the securities and to the exchanges where the securities trade.

The SEC’s Enforcement Initiative

The latest compliance sweep resulted in charges against 28 officers, directors, or major shareholders as well as six publicly traded companies. According to the SEC’s press statement, 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.

“[W]e are bringing these actions together to send a clear message about the importance of these filing provisions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement. “Officers, directors, major shareholders, and issuers should all take note: inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”

As with many recent sweeps, the SEC relied heavily on data analytics to identify violations. According to the agency, the high-tech software was used to identify individuals and companies with especially high rates of filing deficiencies. Some filings were delayed by weeks, months, or even years.

As these enforcement actions make clear, the failure to timely file a required beneficial ownership report, even if inadvertent, constitutes a violation of SEC rules. Therefore, it is imperative for advisory firms, publicly listed companies, and their employees to review their compliance efforts to ensure that all filing obligations are satisfied in a timely manner. Given the heightened enforcement climate, even a minor oversight may prove costly.

If you have any questions about this post or would like to discuss your SEC filing obligations, please contact me or the Scarinci Hollenbeck attorney with whom you work. 

Check some of the previous posts regarding the Securities & Exchange Commissions here at Business Law News: