October 2, 2023
On September 27, 2023, the Securities and Exchange Commission (SEC) announced civil penalties against several officers, directors, and major shareholders for failing to timely report and file disclosures relating to their holdings and transactions in company stock. In total, six individuals and five public companies were charged and paid civil penalties in connection with their violation of disclosure obligations. As a result of failing to file or filing late, the SEC estimated that investors were deprived of information regarding over $90 million in company-stock transactions. The SEC enforcement team used data analytics to determine who repeatedly neglected to file or reported filings late, some of whom were years behind—others, only weeks.
Recent SEC Enforcement on Insider Violation
The SEC Division of Enforcement brought similar charges against late filers in recent years, signaling the need for timely filings and sophisticated monitoring capabilities of insider disclosures. In 2014, 33 individuals and companies settled charges related to Form 4 and Schedule13D and 13G reports, totaling $2.4 million in financial penalties. The focus on insider disclosure compliance is a newer phenomenon: prior to 2014, the SEC generally only included Form4 or Schedule13D and 13G actions in conjunction with other violations of securities laws.
Section 16(a) and Schedule 13D and 13G Reporting Requirements
The SEC requires “insiders” to file disclosures regarding holdings and transactions that might change or influence company management and policies. Under Section 16(a) of the Exchange Act, corporate officers, directors, and beneficial owners of more than 10% of any class of equity securities must report their company stock transactions in a filing called a “Form 4” within two business days of the related transaction.[1]Form 4 filings include information about the insider, their relationship to the company and its securities, the type of transaction that occurred, and the amount and type of securities involved. A failure to file Form 4 timely must be reported in proxy statements or 10-Ks and can lead to fines.
Additional required disclosures include Schedule 13D and 13G reports, which must be filed when a person or group of persons acquires more than 5% of a registered class of the company’s stock.[2]Much like Form 4 reports, these disclosures provide transparency and give investors the ability to discern stock ownership trends. Because these disclosures arise from active transactions, staying on top of deadlines can prove difficult for public companies with many directors or weak internal controls.
Avoiding Reporting Failures
When considering transactions in company securities, public companies should ensure that internal controls appropriately address the timely filing of insider disclosures. Officers, directors, and other beneficial owners should be reminded of the disclosure requirements and obligations required by the SEC. Companies should revisit compliance and pre-clearance procedures concerning company-stock transactions to ensure appropriate lead time in preparing Form 4 and similar filings. The capital markets team at Winston & Strawn LLP can assist in the preparation and timely filing of Section 16(a) or Schedule 13D and 13G disclosures, avoiding costly violations, civil penalties, and unwanted attention from the SEC.
Jesse Dowdle, Law Clerk, also contributed to this blog.
Capital Markets & Securities Law Watch will continue to monitor developments in this area and will provide our readers with updates.
[1] 17 C.F.R. § 240.16a-2.
[2] 17 C.F.R. § 240.13d-1(a)
This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.
FAQs
As part of the process for a securities offering, attorneys perform due diligence (reviewing the company's documents, filings, contracts and other items) to determine what is required to be disclosed, and prepare the agreements for purchase or underwriting of securities and other documents, such as closing certificates ...
What is the capital market and securities market? ›
Capital markets describe any exchange marketplace where financial securities and assets are bought and sold. Capital markets may include trading in bonds, derivatives, and commodities in addition to stocks. A stock market is a particular category of the capital market that only trades shares of corporations.
Does capital markets pay well? ›
Capital Market Salary. $67,500 is the 25th percentile. Salaries below this are outliers. $130,500 is the 75th percentile.
Is capital markets a good career? ›
Roles in capital markets trading are fast-paced, competitive, and very lucrative for those who have the right skills. New sales associates are frequently recruited from highly sought-after undergraduate programs across the globe.
What type of law is capital market? ›
These services include advice on debt and equity offerings, on securitization and on the creation of derivatives. Debt (bonds), equity (stocks) and derivatives are all types of security, and capital markets law is sometimes referred to as 'securities law'.
How do capital markets make money? ›
Financial capital is raised through capital markets in two ways—by selling bonds, which are like loans that the business will repay at a later date with interest, or by selling stocks, which are sold in exchange for the partial ownership of the business.
What is a capital market for dummies? ›
Capital markets are where individuals, companies, and governments raise funds which can be done via equity capital markets or debt capital markets by selling securities like stocks and bonds to investors. These markets facilitate the flow of capital from those who have it (investors) to those who need it (issuers).
What are the three common types of capital market securities? ›
Capital market securities are financial instruments that are issued by corporations and governments to raise capital. These securities can be in the form of debt securities, equity securities, and derivatives.
What are the four major securities? ›
There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities, which are a combination of debt and equity.
What is an example of a capital market security? ›
Capital markets are used primarily to sell financial products such as equities and debt securities. Equities are stocks that represent ownership shares in a company. Debt securities such as bonds are interest-bearing IOUs.
Key Takeaways
Investment Banking specializes in underwriting and advisory services, helping companies raise capital and navigate significant financial transactions. Capital Markets generate revenue from trading fees, transaction commissions, and market-making activities.
What are not considered capital market securities? ›
The correct answer is d. mortgages. A mortgage is a tangible asset supporting a loan as a form of collateral and it is not traded in any capital markets. The rest are traded in the capital market.
What is the meaning of capital market in law? ›
Capital markets are financial markets where people buy and sell various assets like stocks, bonds, and currencies. These markets include the stock market, where shares of companies are traded, and the bond market, where debt securities are exchanged.
What does someone in capital markets do? ›
Capital markets groups help companies raise capital and assemble financing through a broad range of sophisticated solutions. Usually spearheaded by senior-level bankers with long-standing industry, these groups help companies structure and execute financing solutions.
What is the role of a capital markets officer? ›
Analyses data and information to provide financial performance insights and recommendations for consolidated business financial statements. Identifies emerging issues and trends to inform decision-making. Monitors and tracks financial information compliance with standards and regulations, and addresses any issues.
What do lawyers do in venture capital? ›
A venture capitalist lawyer specializes in aiding venture capital funds, startups, and investors, offering expertise in corporate, securities, and tax laws. They play a key role in fund formation, investment structuring, and providing strategic market insights, essential for navigating the complex VC landscape.
