A Securities and Exchange Commission enforcement sweep has resulted in charges and fines against 28 officers, directors, and other shareholders for failing to promptly report required information about their holdings and transactions in company stock. Six publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies. Among those agreeing to settlements were Brown Brothers Harriman, The Royal Bank of Scotland Group, and Starwood Hotel & Resorts.
The enforcement initiative focused on two types of ownership reports that are intended to aid investors as they evaluate whether the holdings and transactions of company insiders could be indicative of the company’s future prospects. 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. Schedule 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 holdings or intentions with respect to the company.
Reporting requirements apply irrespective of profits or a person’s reasons for acquiring holdings or engaging in transactions. The failure to timely file a required beneficial ownership report, even if inadvertent, constitutes a violation of these rules.
A total of 33 of the 34 individuals and companies named in the SEC’s orders agreed to settle the charges and pay financial penalties totaling $2.6 million. Some filings were delayed by weeks, months, or even years, the SEC says.
“Using quantitative analytics, we identified individuals and companies with especially high rates of filing deficiencies, and we are bringing these actions together to send a clear message about the importance of these filing provisions,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement. “Inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”
“The reporting requirements in the federal securities laws are not mere suggestions, they are legal obligations that must be obeyed,” Andrew Calamari, director of the SEC’s New York Regional Office, added. “Those who fail to do so run the risk of facing an SEC enforcement action.”
Among those named by the SEC were Ligang Wang, vice president of China Shen Zhou Mining & Resources, is alleged by the SEC’s Division of Enforcement to have failed to file – on time or at all – reports of his sales of more than 165,000 shares of company stock with a market value of more than $1 million. The Division of Enforcement will litigate the charges against him in an administrative proceeding before an administrative law judge.
Investment firms that were charged include: Brown Brothers Harriman (which agreed to a $120,000 penalty) Del Mar Asset Management (a $66,000 penalty); Lazarus Management Company (a $60,000 penalty); P.A.W. Capital Partners (a $68,000); Ridgeback Capital Management (a $104,500 penalty); RIMA Senvest Management (a $64,000 penalty); (a $120,000 penalty); Sankaty Advisors (a $68,000 penalty); Security Capital Research & Management (an $88,000 penalty); and Trinad Management (a $95,000 penalty).
The SEC’s orders also named six publicly-traded companies for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies:
Jones Lang LaSalle agreed to pay a $150,000 penalty.
KMG Chemicals agreed to pay a $150,000 penalty.
Starwood Hotel & Resorts Worldwide agreed to pay a $75,000 penalty.
Tel-Instrument Electronics agreed to pay a $75,000 penalty.
Universal Electronics agreed to pay a $75,000 penalty.
Willis Lease Finance agreed to pay a $150,000 penalty.
The complete list of those charged and the settlements they agreed to can be found here.
The SEC isn’t the only regulator paying even closer attention to beneficial owners as of late. New sanctions guidance from the Treasury Department’s Office of Foreign Assets Control is intended to add more beneficial owners to its list of Specially Designated Nationals and, separately, its financial crimes division has proposed new rules that require financial firms to go to greater lengths to assess and disclose beneficial owners as part of crackdowns on money laundering and terrorist financing.
Overseas, the Council of Europe's anti-money laundering group has called on members last week to boost transparency efforts to identify ultimate beneficial owners of companies and to ensure that the information is readily available to law enforcement officials. More recently, anti-corruption group Transparency International, launched a campaign intended to pressure officials in Switzerland to create public registers of beneficial ownership data. The nation does not require beneficial owners of companies to be identified, a level of secrecy the activists say helps corrupt foreign public officials and businesspeople hide ill-gotten gains from law enforcement.