The Securities and Exchange Commission announced yesterday that it had filed charges against 13 officers or directors and 15 large individual and investment firm shareholders for violating federal securities laws requiring prompt reporting of securities holdings and transactions in company stock.  Six publicly-traded companies were also charged for contributing to the filing failures or for failing to report the filing delinquencies. 

The SEC’s charges against the insiders stemmed from an enforcement initiative regarding compliance with Section 16(a) and Sections 13(d) and (g) of the Securities Exchange Act of 1934. The SEC’s Section 16(a) actions focused on Form 4.  Section 16(a) requires officers, directors and beneficial owners of more than 10% of a company’s stock to report their transactions by filing a Form 4 with the SEC within two business days.  Generally, Sections 13(d) and (g) require beneficial owners of more than 5% to report their holdings by filing a Schedule 13D within ten days of becoming a beneficial owner or, if eligible, a short-form Schedule 13G within 45 days following the end of the calendar year.  In addition to the reporting requirements placed on directors, officers and shareholders, SEC rules also require publicly-traded companies to identify in their proxy statement and Form 10-K any insiders who failed to file their reports on time.

The failure of insiders to timely file reports, even if inadvertent, violates these rules.  Although the SEC has not previously made violations of these rules an enforcement priority, SEC Enforcement Director Andrew Ceresney said the SEC wants “to send a clear message about the importance of these filing provisions.  Officers, directors, major shareholders and issuers should all take note: inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”  Andrew Calamari, Director of the SEC’s New York Regional Office, added, “The reporting requirements in the federal securities laws are not mere suggestions, they are legal obligations that must be obeyed.  Those who fail to do so run the risk of facing an SEC enforcement action.”

The SEC announced that 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.  Individually, settlement amounts ranged from $25,000 to $150,000.  Given the SEC’s new focus on the timely filing of these reports, publicly-traded companies and their insiders must be diligent in ensuring prompt compliance when reporting securities holdings and transactions.