SEC Disclosure Crackdown Turns to Beneficial Ownership Reports

With another enforcement sweep made possible by its ongoing data dive into corporate filings, the Securities and Exchange Commission has reached settlements with several officers, directors, and major shareholders in companies for failing to update their stock ownership disclosures to reflect material channges, including steps to take those companies private. 

The charges relate to the failure to file Schedule 13D, commonly referred to as a “beneficial ownership report,” in a timely and accurate fashion. When a person or group acquires beneficial ownership of more than 5 percent of a voting class of a company’s equity securities they are required to file a Schedule 13D with the SEC. It reports the acquisition within ten days after the purchase and any material changes to that filing require a prompt amendment.

On Friday, the SEC announced settlements with eight parties over inadequate and outdated Schedule 13D filings. They agreed to pay a fine without having to admit to the charges. The fines ranged from $15,000 to $75,000 and a complete list can be found here.

The SEC’s orders find that the respondents took steps to advance undisclosed plans to effect going private transactions. Some determined the form of the transaction to take the company private, obtained waivers from preferred shareholders, and assisted with shareholder vote projections, while others informed company management of their intention to privatize the company and formed a consortium of shareholders to participate in the going private transaction. Each respective respondent took a series of significant steps that, when viewed together, resulted in a material change from the disclosures that each had previously made in their Schedule 13D filings. According to the SEC, some of the respondents also failed to report their ownership of securities in the company that was the subject of a going private transaction or only disclosed their transactions in company securities months or years after the fact.

 “Investors are entitled to current and accurate information about the plans of large shareholders and company insiders,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement.  “Stale, 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 private.”