In the last week of September, the SEC Enforcement division brought three separate enforcement actions against companies for failure to timely report issuances of unregistered equity securities on Form 8-K and Form 10-Q. The actions are similar to the 10 enforcement actions brought by the SEC in late 2014 against companies who failed to timely make the required disclosures about financing deals and other unregistered sales that diluted their stock.
The SEC did not allege fraud in any of the recent three enforcement actions, only that each of the three companies had failed to report on Form 8-K an Item 3.02 Issuance of Unregistered Securities within four days of entering into a binding agreement pursuant to which the company committed to issuing shares of its common stock in an unregistered transaction. In two of the cases, the SEC also alleged that the companies had issued convertible notes on multiple dates and:
- failed to file a Form 8-K under Item 3.02 reporting the issuance of unregistered securities within four days of the issuance of each of the notes, and
- failed to furnish the information required by Item 701 of Regulation S-K regarding unregistered equity securities under Item 2 of Form 10-Q.
While the companies had reported the issuance of the convertible notes in the notes to the unaudited financial statements for the relevant period, they had not specifically provided the disclosure required by Item 701 of Regulation S-K in Part II, Item 2 of the Form 10-Q.
Each of the companies, without admitting or denying the allegations, agreed to the entry of a cease and desist order and the payment of a penalty ranging from $25,000 to $50,000.