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“Plaintiffs’ Lawyers Aren’t the Only Ones That Look at Section 16 Filings”

Middle-Market Legal Toolbox By Ryan S. Lovitz

Below is an excerpt:

This post is applicable to public companies and their officers and directors.

On September 10, 2014, the Securities and Exchange Commission announced ( that it had brought charges against a total of 34 individuals and companies pursuant to a new enforcement initiative designed to penalize non-compliance with the beneficial ownership filing requirements under Section 16, as well as Sections 13(d) and (g), of the Securities Exchange Act of 1934. All but one of the parties settled with the SEC; the penalties paid by the individuals and companies ranged from $25,000 to $150,000.

Section 16(a) imposes reporting requirements on certain beneficial owners of public company securities, including officers, directors and 10% beneficial owners. Among other requirements under Section 16(a), insiders are generally required to report changes in their ownership of company securities within two business days after any such transaction, unless an exemption applies. While the responsibility for complying with these requirements ultimately rests with the insider, it is common for companies to prepare such reports on their insiders’ behalf or otherwise assist with compliance. If insiders do not timely file Section 16(a) reports, public companies are required to disclose such filing deficiencies in their Form 10-K (and proxy statement, if applicable), and the failure to provide these disclosures could lead to anti-fraud charges. Therefore, to avoid these penalties, it is critical for companies to have strong compliance procedures in place.