SEC Section 13 Enforcement Sweep

Who may be interested: Investment Advisers, Compliance Staff

Quick Take: The SEC recently settled charges against 34 entities and individuals, including 11 institutional investment managers, for failing to timely report information on Schedules 13D and 13G and Forms 13F and 13H, reporting holdings and transactions in public securities. Two public companies were also charged for contributing to filing failures by their officers and directors and failing to report their insiders’ filing delinquencies. All of these charges relate to beneficial ownership information about securities, and reveal the larger owners of public company shares. 

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Form 13F

According to the SEC’s Orders charging the 11 institutional investment managers, the advisers were required to file Form 13F on a quarterly basis because they each held investment discretion over more than $100 million as of the end of any month in holdings of certain securities. The SEC publishes a quarterly official list of Section 13(f) securities primarily includes U.S. exchange-traded stocks, shares of closed-end investment companies and shares of ETFs, as well as certain convertible debt securities, equity options, and warrants. The SEC keeps this official list of Section 13(f) Securities on its website. Form 13F requires institutional investment managers to disclose, among other things, the fair market value of their Section 13(f) Securities under management. Institutional money managers must report the names, types, number of shares owned and value of the shares.

Pursuant to the SEC Orders, two of the firms were also charged with failure to file Form 13H. Under Exchange Act Section 13(h) and Rule 13h-1 thereunder, large traders must self-identify to the SEC on Form 13H. A large trader is a market participant that exercises investment discretion and effects transactions in national market system (NMS) securities during any calendar day equal or exceed 2 million shares or $20 million, or whose transactions during any calendar month equal or exceed 20 million shares or $200 million.

The SEC’s Orders found all 11 firms violated Section 13(f)(1) of the Exchange Act and Rule 13f-1 thereunder and two of the firms violated Section 13(h) of the Exchange Act and Rule 13h-1 thereunder. All 11 firms agreed to settle the SEC’s charges. As part of the settlements, nine firms agreed to pay over $3.4 million in combined fines. Two firms, which self-reported their violations and cooperated with the SEC, will not pay any monetary penalty. A third firm will not pay any fine for its Form 13H violation.

The SEC’s press release announcing these Form 13F enforcement actions against the institutional investment managers can be found here.

Schedules 13D and 13G, and Forms 3, 4 and 5

The SEC’s Orders charging 23 additional entities and individuals stem from alleged failures to timely file reports on Schedules 13D and 13G and Forms 3, 4 and 5. Schedules 13D and 13G provide information about the holdings and intentions of investors who beneficially own more than five percent of any registered voting class of public company stock. Schedule 13D reports holdings by investors; some investors (without a “control” intent) can file the more limited Schedule 13G. Forms 3, 4 and 5 are reports used to provide information about public company stock and derivative holdings and transactions by “insiders” – generally, corporate officers, directors, or certain investors who beneficially own more than 10 percent of a stock. One entity was also charged with failing to timely file Form 13F.

According to the SEC, these violations were due to late filings. These mandatory filings do not have a “state of mind” requirement, and thus, inadvertent late filings can still constitute violations.

Without admitting or denying liability, the entities and individuals agreed to cease and desist from committing and causing further violations, and agreed to pay civil penalties ranging from $10,000 to $750,000. Two public companies that were charged with contributing to filing failures and that failed to report delinquencies each agreed to pay a civil penalty of $200,000.

The SEC’s press release announcing these Schedule 13D and 13G enforcement actions can be found here.