October 05, 2023

SEC Brings Charges Under Enforcement Initiative Directed at Insider Report Compliance Failures

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SEC Brings Charges Under Enforcement Initiative Directed at Insider Report Compliance Failures

On September 27th, 2023, the SEC brought charges against six officers, directors and major shareholders of public companies for repeated failures to make timely filings pursuant to Section 13 and Section 16 of the Securities Exchange Act of 1934. In addition to the corporate insiders, the SEC charged five public companies for causing their insiders’ delinquent filings as a result of volunteering to prepare and file those reports, but not doing so in a timely manner. As set forth in the charging documents, the insiders and public companies displayed a pattern of routinely failing to make filings on time, with some public companies exceeding 100 delinquent filings, and failing to report, or providing insufficient detail regarding, delinquent Section 16 filings on their Form 10-K or proxy statement as required by Item 405 of Regulation S-K. Simultaneous with the announcement of the charges, the SEC announced that the individuals and companies charged have agreed (without admitting or denying wrongdoing) to cease and desist from future violations and to pay civil penalties ranging from $66,000 to $200,000.

According to the SEC press release, these charges are part of an enforcement initiative focused on timely disclosure of insider transactions. A similar initiative was conducted by the SEC in 2014.

The SEC’s enforcement actions serve as a reminder of the importance of having a strong insider reporting compliance program. Compliance programs are protective of both insiders and public companies, which, as shown by the SEC’s recent charges, can be held liable in certain instances even though the filings are obligations of the insiders. Compliance failures can also pose a reputational risk for companies. Public companies should review their processes and procedures for insider reporting compliance, and, for those companies to which Section 16 applies, ensure there is a system for determining late flings so that these can be accurately reported as delinquent by the company as required in its annual report filings.

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John J. Cannon III

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Doreen E. Lilienfeld

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Gillian Emmett Moldowan

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Matthew Behrens

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