On November 5, 2014, the Securities and Exchange Commission (SEC) announced the settlement of enforcement actions against 10 companies for failing to make required disclosures about financing deals and other unregistered sales that diluted their stock. According to the SEC, these disclosures inform investors that stock dilution has occurred as a company issues additional shares in a financing transaction or other unregistered sale that has the effect of reducing the earnings per share and an investor’s percentage of ownership in the company. Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, noted that “These enforcement actions reinforce the ongoing need for full disclosure to shareholders concerning an issuer’s entry into highly dilutive financing agreements.”
The SEC investigations found that each of the 10 companies named failed to make required 8-K disclosure for transactions resulting in stock dilution. Three of the companies additionally failed to use accurate numbers when later reporting the dilution of their common stock in quarterly or annual reports, and one other failed to file quarterly or annual reports. The following disclosure requirements were at issue: (i) Item 1.01 of Form 8-K (disclosure of entry into a material definitive agreement); (ii) Item 3.02 of Form 8-K (disclosure of unregistered sales of equity securities in excess of specified thresholds); and (iii) Form 10-Q or 10-K (disclosure of the number of outstanding shares of common stock as of the latest practicable date).
The companies all agreed to settle the SEC’s charges, and the agency assessed penalties of $25,000 against each of the companies found only to have failed to file an 8-K and $50,000 against each of the others.
Also of Interest
- Tax Alert: Final Debt Regulations Have Limited Scope of Application November 30, 2016 • Client Alerts
- Best Lawyers Profiles Frankle as “Lawyer of the Year” November 28, 2016 • Media Mentions
- Fallon Appointed to the University at Albany Presidential Search Committee November 22, 2016 • Recognitions
- Fintech Term Sheet Negotiations: Key Issues Beyond Price November 21, 2016 • Articles
- JUVE Handbuch Recommends Frankfurt Office and Lawyers November 14, 2016 • Recognitions
- Using Technology Service Providers Is No Silver Bullet November 7, 2016 • Articles
- Chambers UK 2017 Recognizes London Partners and Aviation Finance Practice November 7, 2016 • Recognitions
- Kaye Scholer Advises Bregal, Motion Equity in Morrison Utility Services Sale November 7, 2016 • Client Successes
- Pitfalls of Present-Day Contracts: Hyperlinked Contract Terms November 7, 2016 • Articles