In September 2014, the Securities and Exchange Commission (“SEC”) announced charges against 28 officers, directors and significant stockholders of public companies for violating federal securities laws which require such holders to promptly report information about their holdings and transactions in company stock. The SEC also brought charges against six publicly-traded companies for violating federal securities laws by contributing to filing failures by insiders or failing to report their insiders’ filing deficiencies.

The Rules

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires officers, directors, and 10% or greater beneficial stockholders (collectively referred to as “insiders”) of public companies to file certain reports disclosing their ownership of and transactions in the company’s stock. Insiders are required to file a Form 4 within two business days of a transaction in the company’s stock. Public companies are required to disclose in their proxy statement or Form 10-K whether any of their insiders have failed to timely file Section 16 reports. Section 13(d) of the Exchange Act requires beneficial owners of 5% or more of a public company to file either a Schedule 13D or Schedule 13G to report their ownership of and intentions regarding the company’s stock.

The Charges

The charges against the individuals and holders were based on repeatedly failing to file on time, or ever, these required reports. Some of the charges against the public companies stemmed from the companies causing their insiders’ failure to file the required reports by agreeing to file on behalf of the insiders and then negligently performing those responsibilities. Other charges against the public companies were based on the companies failing to disclose in their proxy statements or Form 10-Ks their insiders’ failure to timely file Section 16 reports.

Almost all of the individuals and companies named in the SEC’s enforcement orders agreed to settle the charges and pay financial penalties totaling $2.6 million. The SEC is litigating the charges against the one remaining individual.

What This Means for Public Companies and Insiders

The SEC has not historically taken enforcement action against insiders or public companies for violations of these rules. However, SEC Chair Mary Jo White previously commented that she plans to devote a portion of the SEC’s resources to identifying and pursuing minor violations of the securities laws to eliminate an atmosphere of lax enforcement that could foster violations of more serious securities law mandates. In this era of increased enforcement, public companies and insiders must devote appropriate time to reviewing their Section 16 and Section 13(d) reporting practices to ensure they are in compliance with the rules.