Investor Fined for Misleading Section 13 Beneficial Ownership Filings
The SEC fined an investor and its principal for failing to make and update accurate Section 13(d) beneficial holdings filings. The SEC charges the respondent with failing to include holdings in the same security by relatives and others under the principal’s control. The SEC alleges that the respondents used these secret holdings to ensure the surprise success of third party director nominees during a proxy battle for the control of a public company. The holder of a public company must file a Schedule 13D once it owns more than 5% of the outstanding securities. The rules apply to investment managers, although they can file a less onerous Schedule 13G if they are passive investors.
Section 13 is designed to limit hostile acquisitions and ensure full transparency during takeover battles. Over the years, the SEC has used Section 13 to monitor third party activists, including hedge funds. Regardless, the reporting applies equally to all investment managers. Make sure somebody at your firm has the responsibility to monitor and make the required filings.