SEC Section 16: Short-swing Profit Rule

General Info

New Developments

2014.Sept.10   SEC Enforcement of Section 16 Reporting Obligations.  It has been almost 20 years since the SEC simplified its Form 3, 4, and 5 requirements for executive officers and directors of public companies. During that time, the section 16 reporting process for many companies may have become increasingly routine and administrative. No longer, it would seem, in the wake of the SEC's announcement of enforcement actions against 34 companies and individuals for violations of the filing requirements under Section 16 and Rule 13 (re beneficial ownership). Here are two notable quotations from the SEC's announcement, with the first one indicating a cost of just under $80,000 per individual settlement, and the second indicating the SEC's method and threat:

  • "A total of 33 of the 34 individuals and companies named in the SEC’s orders agreed to settle the charges and pay financial penalties totaling $2.6 million."
  • “Using quantitative analytics, we identified individuals and companies with especially high rates of filing deficiencies, and we are bringing these actions together to send a clear message about the importance of these filing provisions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Officers, directors, major shareholders, and issuers should all take note: inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”

2012.Mar.30  Supreme Court Addresses Limitations Period for Section 16 Claims.  Credit Suisse v. Simmonds, Supreme Court states: "Moreover, §16’s purpose is fully served by the rules outlined above, under which the limitations period would not expire until two years after a reasonably diligent plaintiff would have learned the facts underlying a §16(b) action. The usual equitable-tolling inquiry will thus take account of the unavailability of sources of information other than the §16(a) filing."