The Securities and Exchange Commission (SEC) announced on March 13, 2015, that it had charged eight officers, directors and major shareholders for failing to file amendments to their Schedule 13Ds to disclose steps to take their respective companies private. The respondents agreed to settle the proceedings, without admitting or denying the SEC’s allegations, by paying financial penalties.
Section 13(d)(1) of the Exchange Act and Rule 13d-1(a) require any person or group who has acquired, directly or indirectly, beneficial ownership of more than 5 percent of a class of registered equity securities to file a Schedule 13D with the SEC no later than 10 days after it accumulated beneficial ownership of more than 5 percent. Section 13(d)(2) and corresponding Rule 13d-2(a) require the prompt filing (within two business days) of an amendment when there is a material change to the facts contained in the Schedule 13D.
Exchange Act Rule 13d-101 (the “Rule”), which sets forth the specific items covered in a Schedule 13D filing, requires filers to disclose “the purpose or purposes of the acquisition of securities of the issuer” in the Item 4 disclosure. The Rule further provides a list of plans or proposals that a reporting person may have that would trigger an Item 4 reporting obligation, including purchasing additional securities; causing an extraordinary corporate transaction, such as a merger, reorganization or going-private; and causing a class of securities of the issuer to be delisted from a national securities exchange.
The SEC alleges that the respondents each took a series of significant steps—such as engaging in preliminary discussions with legal and financial advisors, determining the form of the transaction, informing management of their intention to take the company private or forming a buyer group consortium—that, when viewed together, resulted in a material change that triggered the obligation to file an amendment to their last Schedule 13D filing.
These cases should serve as a reminder for those involved in potential going-privates to pay close attention to their preannouncement activities and whether they may be viewed by the SEC as constituting a material change that will trigger the obligation to file an amendment to a Schedule 13D.