On Wednesday, the SEC announced charges against six officers, directors, and major shareholders of public companies for failing to timely report information about their holdings and transactions in company stock.
Five publicly-traded companies were also charged for contributing to the filing failures by insiders or failing to report their insiders’ filing delinquencies.
Without admitting or denying the findings, the six individuals and five public companies agreed to cease and desist from violating the respective charged provisions and to pay certain civil penalties.
In September 2014, the SEC similarly charged 28 officers, directors, and major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock. And six publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies.
The reporting requirements apply whether or not the trades were profitable and regardless of a person’s reasons for the transactions.
Beneficial ownership reports
The charges stem from an SEC enforcement initiative focused on Form 4 and Schedules 13D and 13G reports that company insiders are required to file regarding their holdings of company stock.
Form 4 is a report that corporate officers, directors, and certain beneficial owners of more than 10 percent of a registered class of a company’s stock must use to report their transactions in company stock within two business days.
Schedules 13D and 13G are reports that beneficial owners of more than 5 percent of a registered class of a company’s stock must use to report their holdings and intentions with respect to the company.
“The insiders and companies charged in these matters in the aggregate deprived investors of timely information about over $90m in transactions.”
Gurbir S. Grewal, SEC Director of Enforcement
These ownership reports give investors and other market participants the opportunity to evaluate whether the holdings and transactions of company insiders could be indicative of the company’s future prospects.
“Timely disclosure of insider transactions is critically important to both investors and the fair, orderly and efficient operation of our securities markets. According to today’s orders, the insiders and companies charged in these matters in the aggregate deprived investors of timely information about over $90m in transactions,” said Gurbir S. Grewal, Director of the SEC’s Director of Enforcement.
Data analytics leads to enforcement action
The SEC notes that its enforcement staff used data analytics to identify the charged insiders as repeatedly filing these reports late. That was true in 2014 as well — the agency pointed to quantitative analytics as helping to identify the individuals and companies with especially high rates of filing deficiencies.
Some filings were delayed by weeks, months, or even years, the agency said.
These actions send a clear message about the importance of the SEC’s filing provisions, with inadvertence being no defense to such violations.
The five businesses charged had each voluntarily agreed to perform certain tasks in connection with the filing of Section 16(a) reports on their officers and directors’ behalf, but had acted negligently and this was deemed a cause of those officers and directors failing to file the required reports on a timely basis.
These actions send a clear message about the importance of the SEC’s filing provisions, with inadvertent breach not being considered a valid defense. And the agency obviously will use enhanced data analytics tools, multiple branch office resources and streamlined enforcement actions to send the message.