SEC Late Reporting Sweep Sends Important Compliance Reminder, Lawyer Says

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By Yin Wilczek

Oct. 28 — The Securities and Exchange Commission's recent enforcement sweep against 34 corporate insiders and companies for the late reporting of stock holdings and transactions is a wake-up call to compliance departments, an attorney said during a webinar Oct. 28.

On Sept. 10, the SEC filed administrative cases against 28 officers, directors and major shareholders for violating §§ 13(d) and 16(a) of the 1934 Securities Exchange Act. The commission also filed actions against six companies for contributing to their insiders' violations or for failing to report the late filings.

This is the first time the SEC has systematically targeted companies and insiders under §§ 13(d) and 16(a), said David S. Wolpa, an associate at McGuireWoods LLP's Charlotte, N.C. office. “In previous instances where the SEC has charged persons with violations of these [provisions], it was usually part of an ongoing or unrelated investigation and these were kind of add-on charges.”

Section 13(d) requires shareholders holding more than 5 percent of a company's stock to file certain disclosures within specified time periods. Section 16(a) requires officers, directors and certain shareholders to file disclosures within specified time periods to report stock holdings and transactions.

Legal Compliance Risk

This also is the first time the SEC has held an issuer liable for its insiders' late reports, Wolpa said. This means complying with § 16 is “now part of a public company's legal compliance risk,” he said.

Thirty-three of the insiders and companies ultimately paid fines amounting to $2.6 million to settle the actions. One respondent is fighting the commission's allegations.

In announcing the cases, SEC Enforcement Director Andrew Ceresney said late reporting is an area on which the commission is focused.

Wolpa, speaking during his firm's webinar, noted that although filing § 16(a) reports is the legal responsibility of corporate insiders, companies that voluntarily agree to prepare and file reports for their officers and directors may be held liable if they fail to comply. “Public companies therefore must maintain a robust Section 16 compliance system,” he said.

Among other measures, companies should ensure they have correctly identified all officers, directors and major shareholders who are covered under § 16, Wolpa said. Companies also should make sure they and the covered individuals understand the filing requirements, he said.

Moreover, companies should ensure they have effective processes for reporting transactions, Wolpa said. As part of this step, they should establish clear lines of communication for reporting transactions and make sure the person charged with receiving the information understands the requirements and has access to securities counsel, he said.


The SEC likely won't bring actions regarding isolated or inadvertent noncompliance with §§ 13(d) and 16(a), Wolpa said. In the Sept. 10 sweep, the SEC pursued only those who engaged in “multiple, flagrant violations,” he noted. The targeted insiders had an average of almost 30 late filings each and were delayed by more than 200 days with respect to each late filing, he said.

Another takeaway from the sweep is the SEC's use of data analytic tools to identify the late filings, Wolpa said. Observers anticipate more SEC actions and settlements arising from the use of such enforcement tools, he added.

Securities attorneys and consultants, speaking at the American Bar Association's Business Law Meeting in Chicago in September, said the commission—as part of its use of data analytics—now is collecting massive amounts of information that may lay the grounds for future enforcement actions.

They said these actions will be especially difficult to defend because the targeted firms likely won't have the resources to perform similar data analyses.

Internal Investigations and Privilege 

In other discussions, Thomas E. Spahn, a partner in McGuireWoods's Tysons Corner, Va., office, warned companies not to hope for too much from In re Kellogg Brown & Root Inc., 756 F.3d 754, 2014 BL 180217 (D.C. Cir. 2014). 

In the June decision, the U.S. Court of Appeals for the District of Columbia dramatically expanded privilege protections for internal corporate investigations, Spahn said.

The D.C. Circuit vacated a discovery order by a district court judge in a qui tam lawsuit filed by Harry Barko, a former employee of Kellogg Brown & Root. Barko had sought access to information concerning KBR's investigation into whether it and certain subcontractors maintained an inappropriate relationship that involved kickbacks while administering military contracts in Iraq. The district court judge granted Barko's motion to compel the production of documents from the internal investigation into the alleged scheme.

One of the most significant takeaways from the D.C. Circuit's decision is that the appellate court, in analyzing the privilege issue, looked beyond the four corners of the pertinent documents, Spahn said. Other circuit courts—before and even after In re Kellogg Brown & Root Inc.—have focused on the face of the withheld material, he said.

Companies can welcome the ruling, but it is unclear whether the D.C. Circuit's analysis will “take root elsewhere,” Spahn said.

“The bottom line here is the Barko case is great,” and “I wish every circuit court would take the same approach,” he said. “But since Barko, I've read 20 or 30 cases that take exactly the opposition position, so don't count on it, and don't take it as such good news that you can stop doing what you should be doing.”

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Mike Moore at

The SEC's announcement of the cases is available at

Text of In re Kellogg Brown & Root Inc. is available at


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