SEC Launches Enforcement Sweep for Violations of Section 13(d) and Section 16 | IPO, Then What?

On September 27, 2023, the SEC announced a series of enforcement actions against six officers, directors and major stockholders of public companies, as well as five companies, for repeated failures to report information regarding ownership of and transactions in the companies’ stock.  In an action reminiscent of its 2014 enforcement sweep, the SEC used data analytics to identify individuals who repeatedly failed to make required filings in a timely fashion.  Each of those charged, without admitting or denying the findings, agreed to settlements with the SEC.

In particular, the SEC targeted failures to timely file Forms 4 and Schedules 13D and 13G. Officers, directors and greater-than-ten-percent stockholders are required to report transactions in a public company’s securities on Form 4, and greater-than-five-percent stockholders are required to make reports on Schedule 13D or 13G with respect to their holdings of and transactions in public company equity securities. The individuals charged by the SEC in these enforcement actions had between 14 and 65 late filings, each.

Late or missed Forms 4 can impact public companies, as well, since they are required to disclose any late filings or known failures to file by insiders in their annual reports or proxy statements.  Companies can also be held responsible for untimely filings if they contribute to their officers’ or directors’ failure to make required reports or fail to adequately police repeated failures by their officers and directors to make timely filings.

Conduct underlying the charges against the public companies included failures to accurately report late or missed filings. In one instance, although the company disclosed that untimely filings were made and included a table providing information about the transactions that should have been reported, it failed to list all the required information, including the number of late reports and the number of unreported transactions for each individual.

In several of the actions brought by the SEC, the company was found to have contributed to late or missed Form 4 filings by its officers and directors because of its failure to perform tasks it voluntarily agreed to take on behalf of its officers and directors.  Two of the enforcement actions brought by the SEC faulted the company for repeatedly failing to ensure that its insiders made timely filings.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, reiterated that these enforcement actions serve not only as a reminder that these reporting obligations are mandatory, but also that “[t]imely disclosure of insider transactions is critically important to both investors and the fair, orderly and efficient operation of our securities markets.” Officers, directors, major stockholders, and public companies should heed this warning and be sure that they have implemented effective processes to ensure compliance with ownership reporting requirements.