Recent actions by the US Securities and Exchange Commission’s (SEC’s) Division of Enforcement highlight the importance of making timely filings pursuant to Sections 13(d), 16, and 13(f) of the Securities Exchange Act of 1934. These filings report beneficial ownership (Schedules 13D and 13G), transactions by insiders and 10% investors (Forms 3, 4, and 5), and public company equity securities under the investment discretion of institutional investment managers (Form 13F).
On September 17, 2024, the SEC announced that it had charged 11 institutional investment managers with failing to file Form 13F to report their investment discretion over more than $100 million in certain securities. Two of these entities were also charged with failing to make filings on Form 13H, which is required of so-called “large traders” who trade a significant daily or monthly volume of exchange-listed securities. Nine of these entities agreed to pay civil penalties ranging from $175,000 to $725,000, for a total of more than $3.4 million. Notably, two entities that self-reported their violations were not ordered to pay any civil penalties.
The following week, on September 25, 2024, the SEC announced settlements with 23 entities and individuals in connection with enforcement initiatives focused on failures to file Schedule 13D and 13G reports and Forms 3, 4, and 5. In addition, one of the entities was also charged with failing to make Form 13F filings.
Those who beneficially own more than 5% of registered voting equity securities of an issuer are required to file reports on Schedule 13D or 13G. Officers and directors of public companies and holders of more than 10% of any registered class of equity securities of public companies are required to report their holdings and transactions on Forms 3, 4, and 5. Civil penalties in these settlements ranged from $40,000 to $750,000 for entities and from $10,000 to $200,000 for individuals, with total penalties exceeding $3.8 million.
Public companies are also required to disclose insider failures to timely file any Section 16 report during the most recent or prior fiscal years pursuant to Item 405 of Regulation S-K in their annual reports on Form 10-K or proxy statements related to annual shareholder meetings, and prior Enforcement actions have highlighted material deficiencies in such disclosures.
In addition, the SEC’s Division of Corporation Finance announced earlier this year that it would conduct selective reviews of beneficial ownership reports to assess compliance with the recent amendments to beneficial ownership reporting and may issue comments regarding any deficiencies, as applicable.
NEXT STEPS
We anticipate that the SEC’s focus on such filings will not soon go away and, accordingly, entities and individuals subject to such filings may want to review their current policies and procedures to ensure that they are up to date and properly monitored.
We wish to remind you of the September 30, 2024 compliance date for recent rule changes relating to Schedule 13G filings. If there were any material changes to your most recent Schedule 13G filings as of that date, an amendment must be filed by November 14, 2024. For a summary of the new rules, see our LawFlash.
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