On March 13, 2015, the Securities and Exchange Commission (the
"SEC") announced that it charged eight officers,
directors, or major shareholders for failing to update their stock
ownership disclosures to reflect material changes.
The SEC charged that these individuals and entities failed to
promptly file amendments to Schedule 13Ds to reflect material
changes, including steps to take the companies private. In
addition, some of them failed to timely file Form 4s to report
their transactions in the company securities. These individuals and
entities agreed to settle the charges and pay penalties ranging
from $15,000 to $75,000.
A Schedule 13D is required to be filed by an individual or
entity that becomes the beneficial owner of more than 5% of a
public company's stock, unless such beneficial owner is
eligible to file and files a short-form statement on Schedule 13G
(which is available for certain passive investors). The information
required in Schedule 13D includes plans or proposals that would
result in certain transactions, such as a going private
transaction. In addition, if any material change occurs in the
facts set forth in the Schedule 13D, the beneficial owner must
promptly file an amendment disclosing that change. For example,
generic disclosure that indicates the beneficial owner is reserving
the right to engage in certain transactions required to be
disclosed must be amended when a plan with respect to such
transaction has been formulated (or even before a plan has been
formulated, depending on the facts and circumstances).
Any executive officer or director of a public company or a
beneficial owner of more than 10% of the public company's stock
(each, an "insider") is required to file a Form 3 to
disclose beneficial ownership of all company securities within 10
days after being an insider, or on or before the effective date of
registration of the class of equity security of the company under
Section 12 of the Securities Exchange Act of 1934 (i.e. the date
the company becomes a public company). An insider must file a Form
4 to disclose any transactions that result in a change in
beneficial ownership within two business days following the
execution date of transaction, except for limited types of
transactions eligible for deferred reporting. In addition, an
insider is required to file a Form 5 within 45 days after the
public company's fiscal year-end to report any transactions or
holdings that should have been, but were not reported on Form 3 or
4 during the public company's most recent fiscal year and any
transactions eligible for deferred reporting (unless the insider
has previously reported all such transactions).
The SEC stated that "[i]nvestors are entitled to current
and accurate information about the plans of large shareholders and
company insiders," and "[s]tale, generic
disclosures that simply reserve the right to engage in certain
corporate transactions do not suffice when there are material
changes to those plans, including actions to take a company
These enforcement activities seem to be continuation of the
SEC's new enforcement philosophy called "broken windows
policy" where the SEC devotes a portion of its resources to
identify and pursue minor violations of the securities laws.
On September 10, 2014, the SEC also announced charges against 34
individuals and companies for failure to promptly file Form 4,
Schedule 13D or 13G or contributing to filing failures by insiders
or failing to report insiders' filing delinquencies. The SEC
enforcement staff used quantitative data sources and ranking
algorithms to identify them as repeatedly filing late. A total of
33 of these individuals and companies agreed to settle the charges
and pay penalties ranging from $25,000 to $150,000. In addition, on
the same date, the SEC announced fraud charges against a biotech
company and its former CEO with defrauding investors by failing to
report his sales of company stock. The former CEO agreed to settle
the SEC's charges by paying a $175,000 penalty and the company
agreed to pay a $375,000 penalty and retain an independent
consultant to conduct a review of its Section 16(a) reporting and
compliance procedures (i.e. filing Forms 3, 4 and 5).
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guide to the subject matter. Specialist advice should be sought
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