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SEC shortens filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G.[1]

The Commission has approved amendments to shorten the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G.[1]  The final amendments reflect consideration of the concerns raised by commenters in response to the proposal.[2] 

SEC fines late Schedule 13D and 13G reports.

The charges stem from an SEC enforcement initiative focused on Form 4 and Schedules 13D and 13G reports that company insiders are required to file regarding their holdings of company stock. Schedules 13D and 13G are reports that beneficial owners of more than 5 percent of a registered class of a company’s stock must use to report their holdings and intentions with respect to the company. These ownership reports give investors and other market participants the opportunity to evaluate whether the holdings and transactions of company insiders could be indicative of the company’s future prospects. SEC enforcement staff used data analytics to identify the charged insiders as repeatedly filing these reports late. Some filings were delayed by weeks, months, or even years. The reporting requirements apply irrespective of whether the trades were profitable and regardless of a person’s reasons for the transactions.

Failure to timely file accurate reports on Schedule 13G results in fine.

In a settled matter, a registered investment adviser was charged with failing to disclose conflicts of interest regarding its personnel’s ownership interests and its investment of client assets in affiliated certain special purpose acquisition companies (“SPACs”). The respondent was also charged with failing to timely file accurate reports on Schedule 13G concerning the beneficial ownership of the common stock of a public company formed as a result of a SPAC business combination. Remedies included censure, cease-and-desist, and a civil penalty of $1.4m.

https://www.sec.gov/litigation/admin/2023/34-97622.pdf

The Commission offers a detailed analysis of the economic effects of the proposed change in rules based on academic research and quantitative analysis. See, https://www.sec.gov/comments/s7-06-22/s70622-20165251-334474.pdf.

Elon Musk demonstrates why Beneficial Ownership Reporting matters.

Elon Musk achieved something notable by putting Section 13 on the front page of the business section of newspapers when he bought 9.2% of Twitter, a subject typically reserved for green-shaded securities lawyers working to make sure beneficial ownership greater than 5% is properly reported with the SEC.

It started on April 4, 2022, when Elon filed a Schedule 13G to report his ownership of 9.2 % of Twitter, Inc. Schedule 13G is a short form filing that can be used by passive investors. The next day, Twitter announced that it agreed to appoint Elon to the board of directors, along with some conditions.  Later that same day on April 5, Elon submitted a Schedule 13D which is the longer form, stating the same number of shares but with more detailed information required if an investor is not passive. 

Aside from which form to use, did he miss the deadline? It is pretty clear that he did. Once you own more than 5%, you must file within 10 days.  Elon reported that he owned more than 5% on March 14, based on Twitter's 10-K. Instead of filing by March 24, the 10 day deadline, he filed on April 4. The 10 day lag means that the public didn't know Elon held more than a 5% position.  This lag gave him an extra ten days to buy the added 4.1% before the per share price hike that occured on announcement of his holdings.   

SEC Proposes Changes to Section 13D and SectionG Reporting

These amendments would update our reporting requirements for modern markets, reduce information asymmetries, and address the timeliness of Schedule 13D and 13G filings," said SEC Chair Gary Gensler. "Investors currently can withhold market moving information from other shareholders for 10 days after crossing the 5 percent threshold before filing a Schedule 13D, which creates an information asymmetry between these investors and other shareholders.The filing of Schedule 13D can have a material impact on a company's share price, so it is important that shareholders get that information sooner. The proposed amendments also would clarify when and how certain derivatives acquired with control intent count towards the 5 percent threshold, clarify group formation, and create related exemptions.”

The Securities and Exchange Commission ("Commission') is proposing to amend certain rules that govern beneficial ownership reporting. The proposed amendments would modernize the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G. See, https://www.sec.gov/files/rules/proposed/2022/33-11030.pdf.

The SEC brought charges against a fund manager for 13D violations, demonstrating that it will pursue enforcement actions against filers for Schedule 13D violations even without a pattern of repeat violations.

On Sept. 17, 2020, the SEC announced the settlement of charges brought against an investment manager of certain private funds (“IM”) for failure to timely amend a statement of beneficial ownership report on Schedule 13D (Administrative Proceeding File No. 3-20020).