On September 25, the Securities and Exchange Commission (SEC) announced that it had charged 23 entities and individuals for failure to timely file Schedules 13D and 13G reports and Forms 3, 4, and 5. The SEC also charged two public companies for contributing to filing failures by their directors and officers and failing to report their filing delinquencies as required. Without admitting or denying the findings, all of the entities and individuals agreed to pay civil penalties totaling more than $3.8 million.
What you need to know about this enforcement sweep:
- This is not an isolated incident - The SEC listed compliance with the beneficial ownership rules as one of its priorities for the 2024 disclosure review program. Since then, the SEC has issued several comment letters about the timing of Schedule 13D filings (for example, see the SEC comment letters to Kimmeridge Energy Management Company, LLC and Vida Ventures, LLC) and recently charged Carl Icahn for failing to file required amendments to his Schedule 13D. We expect to see an uptick in SEC comments on 13D and 13G filings this year.
- Filers may have an amended 13G due soon - In October 2023, the SEC adopted new rules governing beneficial ownership reporting, including accelerating the filing deadlines for Schedule 13G. The accelerated filing deadlines for Schedule 13G will become effective on September 30, 2024. As a result, amended 13G filings must be filed by 10 p.m. EST on Thursday, November 14 to report material changes since the filer’s last 13G filing. New initial Schedule 13G filings for investments that first passed the 5% threshold during 2024 will also be due at that time. With the SEC closely monitoring these filings, it is important that filers are aware of this upcoming deadline and are prepared to comply. See our alert for more information.
- Don't forget about your Section 16 reports - With the frequency of insider transactions, it is easy to let a Form 3, 4, or 5 slip. It is often helpful to keep a calendar updated for the relevant insiders in your company noting the date(s) when new annual grants will be made, scheduled RSU vesting dates, the date of the next annual meeting, the company blackout window schedule, and the dates of any scheduled trading windows in the insiders’ 10b5-1 plans. Companies should also have a process in place with their insiders' advisors and brokers so the company's in-house legal team receives information about transactions in a timely manner.
Once notified, legal teams may want to set a reminder to ensure these forms are being filed on time whether it is by their team or someone else. If a Form 3, 4, or 5 filing is missed, the legal team should ensure it is filed immediately and keep a list of all late filings. These late filings must be disclosed in the company's next proxy statement under the header “Delinquent Section 16(a) Reports.” Finally, when building a culture of compliance, it is important to raise awareness with those outside of the legal department that late filings can result in penalties and reputational harm to the company and its insiders.
This enforcement sweep provides an excellent time to remind insiders about the new beneficial ownership reporting deadlines and their ongoing reporting obligations generally.
