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Be Timely or Else: SEC Imposes Sanctions Against Both Insiders and Issuers for Beneficial Ownership Reporting Failures
2 October 2014
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The SEC recently stepped up enforcement against officers, directors and significant equity holders (including private fund management firms) who repeatedly failed to timely file their reports under Section 16 and Section 13(d) of the Exchange Act and against issuers for not properly disclosing the failures in their annual filings. The SEC also sanctioned issuers who contributed to their insiders’ reporting failures. We expect that the SEC will continue to be on the lookout for serial reporting violations, but not targeting every foot fault.
These enforcement actions are a reminder that corporate insiders and significant shareholders (whether their securities are directly or indirectly owned) should diligently check that all of their Section 16 and Section 13(d) reports are timely and accurately filed. If there’s a compliance failure, the SEC does not excuse reporting persons who had tasked the issuer or outside counsel to handle the filings, even if they had provided the issuer with all the necessary information.
If an issuer is assisting insiders with filing Section 16 reports, it must dedicate the appropriate resources to ensure that filings are made on time. An issuer that fails to do so could be held liable for negligently contributing to the insiders’ reporting violations. Also, the SEC expects issuers to monitor the Section 16 reports of their insiders and to correctly disclose any missed filings in the Form 10-K or annual proxy statement.
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