Consistent with that strategy, today the SEC announced enforcement actions against 10 small public companies for failing to file Form 8-Ks to disclose financings and unregistered sales of securities. The alleged violations were failures to disclose (1) the entry into a material definitive agreement (in these cases, financing agreements) and (2) the unregistered sales of shares that exceeded 5% of the number of last reported shares outstanding. Some companies also allegedly failed to disclose the correct number of shares outstanding as of the latest practicable date in their Form 10-Q or 10-K.
Today’s announcement is on the heels of the SEC’s September 10th announcement of enforcement actions against 34 companies and individuals for alleged violations of Section 16(a) (e.g., failure to file a Form 4 to report a transaction in a company’s securities) and Schedules 13D and 13G. That may have been the first ever enforcement sweep of that nature. Historically, Section 16(a) violations have been included in enforcement actions alleging more material (e.g., fraud) securities laws violations. In addition, several of the Section 16(a) enforcement actions included an alleged violation by the company of Regulation S-K Item 405 (failure to report delinquent Section 16(a) filings in the proxy statement) and included the company as a participant in the Section 16(a) violation, disregarding the company’s defense that it relied on the annual Section 16(a) compliance certification that companies typically get from insiders.
The above enforcement actions highlight that the SEC does investigate the public filings (or lack thereof) of even the smallest companies (and of their insiders) and does enforce even the more technical provisions of the federal securities laws. These actions may also serve as a reminder of why it is important to have disclosure policies and procedures in place that ensure filings comply with applicable SEC disclosure requirements and are timely made, and as an opportunity to remind insiders of the need to comply with their reporting obligations.