October 2, 2023
On September 27, 2023, the Securities and Exchange Commission (SEC) announced civil penalties against several officers, directors, and major shareholders for failing to timely report and file disclosures relating to their holdings and transactions in company stock. In total, six individuals and five public companies were charged and paid civil penalties in connection with their violation of disclosure obligations. As a result of failing to file or filing late, the SEC estimated that investors were deprived of information regarding over $90 million in company-stock transactions. The SEC enforcement team used data analytics to determine who repeatedly neglected to file or reported filings late, some of whom were years behind—others, only weeks.
Recent SEC Enforcement on Insider Violation
The SEC Division of Enforcement brought similar charges against late filers in recent years, signaling the need for timely filings and sophisticated monitoring capabilities of insider disclosures. In 2014, 33 individuals and companies settled charges related to Form 4 and Schedule13D and 13G reports, totaling $2.4 million in financial penalties. The focus on insider disclosure compliance is a newer phenomenon: prior to 2014, the SEC generally only included Form4 or Schedule13D and 13G actions in conjunction with other violations of securities laws.
Section 16(a) and Schedule 13D and 13G Reporting Requirements
The SEC requires “insiders” to file disclosures regarding holdings and transactions that might change or influence company management and policies. Under Section 16(a) of the Exchange Act, corporate officers, directors, and beneficial owners of more than 10% of any class of equity securities must report their company stock transactions in a filing called a “Form 4” within two business days of the related transaction.[1]Form 4 filings include information about the insider, their relationship to the company and its securities, the type of transaction that occurred, and the amount and type of securities involved. A failure to file Form 4 timely must be reported in proxy statements or 10-Ks and can lead to fines.
Additional required disclosures include Schedule 13D and 13G reports, which must be filed when a person or group of persons acquires more than 5% of a registered class of the company’s stock.[2]Much like Form 4 reports, these disclosures provide transparency and give investors the ability to discern stock ownership trends. Because these disclosures arise from active transactions, staying on top of deadlines can prove difficult for public companies with many directors or weak internal controls.
Avoiding Reporting Failures
When considering transactions in company securities, public companies should ensure that internal controls appropriately address the timely filing of insider disclosures. Officers, directors, and other beneficial owners should be reminded of the disclosure requirements and obligations required by the SEC. Companies should revisit compliance and pre-clearance procedures concerning company-stock transactions to ensure appropriate lead time in preparing Form 4 and similar filings. The capital markets team at Winston & Strawn LLP can assist in the preparation and timely filing of Section 16(a) or Schedule 13D and 13G disclosures, avoiding costly violations, civil penalties, and unwanted attention from the SEC.
Jesse Dowdle, Law Clerk, also contributed to this blog.
Capital Markets & Securities Law Watch will continue to monitor developments in this area and will provide our readers with updates.
[1] 17 C.F.R. § 240.16a-2.
[2] 17 C.F.R. § 240.13d-1(a)
This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.
FAQs
Overview. Securities or Capital Markets attorneys help companies raise the money they need to operate by representing issuers and underwriters in securities transactions, including IPOs, stock offerings, and debt offerings in public markets.
What is the capital market and securities market? ›
Capital markets describe any exchange marketplace where financial securities and assets are bought and sold. Capital markets may include trading in bonds, derivatives, and commodities in addition to stocks. A stock market is a particular category of the capital market that only trades shares of corporations.
What type of law is capital markets? ›
These services include advice on debt and equity offerings, on securitization and on the creation of derivatives. Debt (bonds), equity (stocks) and derivatives are all types of security, and capital markets law is sometimes referred to as 'securities law'.
What does securities law cover? ›
State securities laws are commonly known as blue sky laws. Typical provisions include prohibitions against fraud in the sale of securities, registration requirements for brokers and dealers, registration requirements for securities to be sold within the state, remedial sanctions and civil liability.
Does capital markets pay well? ›
For example, a junior capital markets analyst with 1-3 years of experience may earn around $70,000 to $90,000 in base salary. However, a senior capital markets analyst or vice president with over 10 years of experience can make a base salary of $150,000 to $250,000.
Is capital markets a good career? ›
They're known as Equity Capital Markets (ECM) bankers and Debt Capital Markets (DCM) bankers. Capital markets jobs are well paid. The highest pay goes to people originating deals and bringing in new clients rather than just executing on capital raising transactions.
What are the three common types of capital market securities? ›
Capital market securities are financial instruments that are issued by corporations and governments to raise capital. These securities can be in the form of debt securities, equity securities, and derivatives.
What is an example of a capital market security? ›
Security relates to a financial instrument or financial asset that can be traded in the open market, e.g., a stock, bond, options contract, or shares of a mutual fund, etc.
What companies are in capital markets? ›
Largest Companies In The Capital Markets Industry
| Symbol | Name | Price (Intraday) |
|---|
| MS | Morgan Stanley | 98.25 |
| SCHW | The Charles Schwab Corporation | 62.12 |
| IBKR | Interactive Brokers Group, Inc. | 128.07 |
| TW | Tradeweb Markets Inc. | 117.54 |
21 more rowsFinancial capital is raised through capital markets in two ways—by selling bonds, which are like loans that the business will repay at a later date with interest, or by selling stocks, which are sold in exchange for the partial ownership of the business.
Lawyers in capital markets will carry out due diligence, or DD, on issuers of securities, and create prospectuses which provide information for those looking to invest. They will also be tasked with processing the approval of a listing on a stock exchange, like the NYSE or the London Stock Exchange.
What falls under capital markets? ›
Capital markets are those where savings and investments are channeled between suppliers and those in need. Suppliers are people or institutions with capital to lend or invest. They typically include banks and investors. Those who seek capital in this market are businesses, governments, and individuals.
Is securities law civil or criminal? ›
While always actionable under common law fraud, Congress, the Securities and Exchange Commission (SEC), and states provide for criminal and civil liability for securities fraud.
Who do securities laws apply to? ›
This law regulates investment advisers. With certain exceptions, this Act requires that firms or sole practitioners compensated for advising others about securities investments must register with the SEC and conform to regulations designed to protect investors.
What are securities law violations? ›
Fraudulent schemes, such as Ponzi or pyramid schemes. Theft of money or securities. Insider trading. Manipulation of investment prices. Making false or misleading statements about a company, including in SEC filings.
What does someone in capital markets do? ›
The stock exchange is an example of a capital market, where companies can invest in instruments like mutual funds, hedge funds and other securities. Capital market analysts are the financial analysts responsible for tracking, analyzing and interpreting data about available securities, prices and market activities.
What are the functions of a capital market solicitor? ›
Conducts legal due diligence on the issuer. Ensures due compliance with all legal and regulatory requirements and relevant corporate approvals. Reviews the main offering document (typically prospectus or PPM) and drafts the relevant agreements vending, underwriting, financial services, etc.
What do lawyers do in venture capital? ›
A venture capitalist lawyer specializes in aiding venture capital funds, startups, and investors, offering expertise in corporate, securities, and tax laws. They play a key role in fund formation, investment structuring, and providing strategic market insights, essential for navigating the complex VC landscape.
