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SEC Sanctions 10 Companies for Failures to Disclose Unregistered Stock Issuances

November 7, 2014

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


Sara Adler
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Joel I. Greenberg
Senior Corporate Partner
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