- 34 companies, executives, shareholders charged
- First-of-its-kind sweep may be preview of more
- 33 are settling case, paying $2.6 mln in penalties
The SEC said it had used sophisticated computer algorithms and quantitative data sources to identify insiders who repeatedly were late when filing important disclosures. The alleged disclosure violations relate to two types of key ownership reports that can indicate corporate insiders’ views of a company’s future performance.
Other companies charged include KMG Chemicals Inc, Willis Lease Finance Corp and its CEO Charles Willis, Universal Electronics Inc and its CEO Paul Arling, Tel-Instrument Electronics Corp, Brown Brothers Harriman & Co and Lazarus Management Co LLC.
Andrew Ceresney, the SEC’s enforcement director, told reporters on a conference call that the Sept. 10 actions mark the first time the agency has systemically targeted companies and executives over these types of disclosure violations. “This is an area that we thought did have a need for additional focus,” he said. “We were seeing compliance violations when we started to look at it.”
Of the 34 companies and individuals charged, 33 are settling the case and collectively paying $2.6 million in penalties.
The SEC’s case against Ligang Wang, a vice president of China Shen Zhou Mining & Resources, will be heard before an administrative law judge. The SEC alleges that Wang failed to report sales of more than 165,000 shares of company stock. The SEC said it had revoked China Shen Zhou’s registration of common stock in June. Wang, who resides in China, has no known defense counsel.
In a statement, Willis Lease Finance said its officers typically filed disclosures about their trades on time, but on “certain occasions” there were delays of a day or more. “The company has since hired a new general counsel and has taken remedial steps to ensure ongoing compliance with filing deadlines, including the hiring of a new SEC compliance manager,” Willis Lease Finance said.
A spokeswoman for Brown Brothers Harriman said the company has since bolstered its policies and controls and is settling without admitting or denying the charges. Attorneys or representatives for KMG Chemicals and Tel-Instrument Electronics did not immediately respond to requests for comment. Jones Lang LaSalle said it resolved the case and strengthened its procedures. An attorney representing Starwood Hotel & Resorts, Universal Electronics and Universal Electronics’ Arling, declined to comment. Lawyers for Lazarus also declined, and a spokeswoman for the Royal Bank of Scotland declined to comment.
One type of report connected to the alleged violations, known as a Form 4, must be filed by corporate officers, directors and shareholders who own more than 10 percent of a company’s public stock to disclose their transactions in those shares within two business days. Companies are separately required to review annually all their insiders’ forms and disclose to investors the names of any executives who missed the filing deadline. A second type of report at the heart of the SEC’s action involves Schedule 13D and 13G. These forms are filed by shareholders who own more than 5 percent of a stock, a filing that alerts other investors about their holdings and future intentions.
The SEC’s probe found that in many cases, the defendants in the case had delayed filing their reports by weeks, months or years. In order to charge a company or individual for filing these reports late, the SEC does not need to show intent. Even an inadvertent failure to file is considered a violation of the law.
The SEC filed a case separately against the Massachusetts-based biotechnology firm Advanced Cell Technology and its former Chief Executive Officer Gary Rabin. The SEC said Rabin failed for years to report his sales of company stock, leading the company to release inaccurate proxy statements. The SEC said it felt this case was more egregious than the others, and it also charged the defendants with negligence-based fraud.
A spokesman for the company declined to comment, and an attorney for Rabin could not be immediately reached.
Scott Kimpel, a partner at the law firm Hunton & Williams LLP and a former SEC attorney, said the case and comments by top SEC officials “may preview a greater volume of enforcement cases based on algorithmic analysis” using Edgar, the online database for company filings.
Sarah N. Lynch is a correspondent for Reuters in Washington. Additional reporting by Emily Flitter in New York.