SEC Brings Form 4 Enforcement Action

September 10, 2014

The SEC brought an administrative action against Salim Ghauri, a director and officer of NetSol Technologies, Inc. (NetSol), for violations of the beneficial ownership reporting requirements of the federal securities laws. Section 16(a) of the Exchange Act and the rules promulgated thereunder require officers and directors (called insiders) of a company with a registered class of equity securities, and any beneficial owners of greater than 10% of such class, to file certain reports of securities holdings and transactions. Ghauri, because of his positins at NetSol, is subject to the reporting requirements of Section 16(a) of the Exchange Act.

Pursuant to Section 16(a) and Rule 16a-3, insiders are required to file initial statements of holdings on Form 3 and keep this information current by reporting transactions and holdings on Forms 4 and 5. With regard to Form 4, insiders must file Form 4 reports disclosing transactions resulting in a change in beneficial ownership within two business days following the execution date of the transaction, except for limited types of transactions eligible for deferred reporting. Transactions required to be reported on Form 4 include purchases and sales of securities, exercises and conversions of derivative securities, and grants or awards of securities from the issuer. In addition, insiders are required to file a Form 5 within 45 days after the issuer’s fiscal year-end to report any transactions or holdings that should have been reported on Form 4 during the issuer’s most recent fiscal year but were not.

The SEC stated that Section 16 places the responsibility to report changes in securities ownership on insiders. Furthermore, a showing of scienter is not required to establish violations of Sections 16(a) and the rules thereunder.

The SEC found that from May 10, 2011 to March 29, 2012, Ghauri engaged in 15 transactions in NetSol stock without filing with the SEC the required reports on Forms 4 for such transactions. On February 14, 2014, after the staff contacted NetSol about Ghauri’s Forms 4, Ghauri filed a Form 4 to report these previously unreported transactions.

Ghauri's unreported transactions include sales of NetSol stock from May 2011 through August 2011, for gross proceeds of $423,951, and purchases of NetSol stock from August 2011 through March 2012 for a total cost of $377,222. Respondent’s Forms 5 filed for the fiscal years ended June 30, 2011 and 2012 also failed to reflect these unreported transactions.

As a result of the conduct, the SEC found that violated Section 16(a) of the Exchange Act and Rule 16a-3 thereunder. The SEC fined him $67,500.

Click to access the administrative action.


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