The Securities and Exchange Commission recently announced that it had  reached dozens of settlements in a crackdown on repeated delinquencies  in the timely filing of forms required by Sections 16(a), 13(d) and 13(g) of  the Securities Exchange Act. The SEC indicated that its goal is to send a  clear message about the importance of these filing provisions. While the  rules have not changed, these actions serve as a wake-up call to  companies and insiders to be vigilant about their reporting obligations.

The provisions of Sections 16(a), 13(d) and 13(g) require major  shareholders and directors and officers of public companies to timely  report information about their holdings and transactions in company  securities. These filings allow other investors to consider the impact that  such holdings and transactions might have on a company’s future. 

Although the deadlines are mandatory, rather than guidelines, late filings  have not generally led to SEC action absent other violations, such as short  swing profit penalties under Section 16. While these are individual or  shareholder filings, companies are obligated to disclose late filings under  Section 16(a) in their annual reports and/or proxy statements. Financial  penalties, however, though technically possible, have generally not been  imposed against companies or insiders.

The status quo shifted on September 10, 2014, when the SEC revealed  that it had charged 28 officers, directors and major shareholders of public  companies for repeated late filing of Forms 4 and Schedules 13D and 13G,  as well as charged six public companies with contributing to or failing to  report filing failures. The SEC stated that it had targeted individuals and  companies that it had identified, using quantitative data sources and  ranking algorithms, as those whose rates of filing deficiencies were  particularly high. Of the 34 charged, 33 settled with the SEC, agreeing to  pay penalties totaling $2.6 million.

Under Section 16(a), an officer, director or, in certain cases, beneficial  owner of more than 10% of a registered class of a public company’s  securities must initially file a Form 3 to report ownership of company  securities at the time of effectiveness of the company’s IPO or, if already  public, within ten calendar days after the person becomes an officer,  director or more than 10% beneficial owner. Subsequently, such persons  must file a Form 4 to report most transactions in the company’s securities  within two business days after a transaction.

Under Sections 13(d) and 13(g), a Schedule 13D or  13G must be filed by a beneficial owner of more than  5% of a registered class of a public company’s  securities to report the owner’s holdings or intentions  with respect to the company. When a person’s  beneficial ownership first reaches the 5% threshold,  a Schedule 13D must be filed within ten calendar  days after that occurrence. Subsequently, the  Schedule must be amended “promptly” following any  material change to the information reported.  Alternatively, a Schedule 13G, which can be used by  beneficial owners who are considered “passive  investors” in lieu of the more onerous Schedule 13D,  must be filed within ten calendar days of the  shareholder hitting the 5% threshold, or in some  cases within 45 calendar days after the end of the  year in which the filer became obligated to make the  filing. With certain exceptions, a filer must amend a  Schedule 13G within 45 days of the end of any year  in which any changes to the information in the filing  occurred.

Although, for now, the SEC seems to be focusing on  the most egregious offenders, it reminded the public  that “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.”


Public companies should note that the SEC has  charged not only delinquent filers but also companies  that failed to stop or report such delinquencies. To  minimize the risk of an SEC enforcement action,  public companies should take the following steps:

  • Companies should inform their officers,  directors and major shareholders of the  transactions that trigger filing requirements  and of filing deadlines, and regularly remind  them of their reporting obligations.
  • If a company has agreed to assist its officers,  directors or major shareholders with the  required filings, it should make it clear that  such persons need to timely communicate all  transactions in the company’s securities,  preferably while such transactions are still in  the planning stages, before execution.
  • If, after a company has taken the above  actions, late filings under Section 16(a) still  occur, the company should be sure to  disclose them as required in its annual  reports and/or proxy statements.

Directors, officers and major shareholders of public  companies should remain educated about their filing  obligations under Sections 13 and 16 and make sure  to keep applicable companies informed about their  transactions to ensure timely reporting. Any time a  transaction is under consideration, these persons  should plan in advance for their reporting and, if not  sure about their obligations, err on the side of  checking with the applicable company or its counsel.