SEC Takes Action Against Corporate Insiders for Disclosure Violations

Investment Management Update

Date: September 17, 2014

The SEC recently announced it had charged 28 officers, directors and major shareholders for failing to timely report their holdings and transactions in shares of public companies. Six public companies were also charged for contributing to insiders’ filing failures or for failing to report the insiders’ late or missed filings. Ten of the major shareholders charged were investment firms that failed to report their beneficial ownership of shares in public companies. Some of the filings were delayed by weeks, months or, in some cases, years. All cases except one have been settled with the SEC, with sanctions totaling $2.6 million.

Certain shareholders are required to file ownership reports based on their holdings and transactions. A company’s officers, directors and shareholders owning 10 percent or more of a company’s shares are required by Section 16 of the Securities Exchange Act (Act) to file Form 3 to report their initial holdings within 10 business days of becoming an officer, director or 10 percent shareholder. Thereafter, such shareholders are required to file Form 4 to report their transactions in shares of the company within two business days.

Shareholders who own 5 percent or more of a class of a company’s shares are required by Section 13 of the Act to report their holdings and any intentions they may have with respect to the company on Schedule 13D or Schedule 13G within 10 days of acquiring at least 5 percent of a class of shares. Material changes to Schedule 13D filings, including the acquisition or disposition of shares equal to 1 percent of the class of shares, require that an amendment be filed promptly (within one business day). Amendments to Schedule 13G filings must be made within 45 days after the calendar year end. However, if the holdings of a shareholder filing on Schedule 13G exceed 10 percent of the outstanding shares of a class of shares, the shareholder must file an amendment within 10 days after the end of the month in which the acquisition was made.

Investment advisers should consider the policies and procedures they have in place to monitor ownership of equity securities in their portfolios to ensure they can accurately track their ownership positions in public company shares and make the appropriate filings in a timely manner. Shareholders who need to report their transactions on Form 4 should also be mindful of the provisions of Section 16(b) of the Act, which disallow profits made by any combination of purchase and sale of company shares within a six-month period.


For more information, please contact:

Andrew J. Davalla

Michael V. Wible

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