SEC and Activist Investors Reach Settlement over Disclosure Violations

February 24, 2017

The U.S. Securities and Exchange Commission and a group of activist investors settled claims that the group failed to adequately disclose information during campaigns to exert influence over public companies.


  • SEC rules require the acquiror of more than 5% of a public company’s stock to file a Schedule 13D within 10 days of the acquisition. Schedule 13D requires disclosure of the identity of the acquiror and other material information, including the purpose of the acquisition. When two or more persons act as a group, their shares are aggregated for purposes of the 5% ownership test. In addition, a Schedule 13D filer is required to promptly amend its filing to disclose any material changes. 
  •  A Schedule 13G, which requires much less burdensome disclosure, may be filed in lieu of Schedule 13D if, among other things, the filer acquires the securities in the ordinary course and not with the purpose of exerting influence over the issuer. However, a Schedule 13D must be filed within 10 days if a Schedule 13G filer subsequently holds the securities for the purpose of exerting influence.
  • During the course of campaigns to exert influence over five public companies, a group of activist investors allegedly failed to comply with the Schedule 13D requirements. The alleged violations included (a) failing to file a Schedule 13D to supersede a prior Schedule 13G, (b) omitting important information about the investors’ plan with respect to the issuer and (c) failing to disclose joint action by a group of investors.
  • Several of the investors agreed to pay monetary penalties to resolve the disclosure claims.
  • In certain respects, this enforcement action targeted so-called “wolf pack” behavior where unaffiliated investors may act together, but try to avoid being characterized as a “group” for Schedule 13D purposes. This enforcement action demonstrates that the SEC is willing to investigate undisclosed concerted behavior.
  • In this enforcement action, the SEC also continues to focus on disclosure of filers’ intentions in holding target company securities and their obligation to promptly amend filings for changes in their plans or proposals. In 2015, the SEC brought a number of similar enforcement actions alleging that filers had failed to update their disclosure after taking steps towards certain plans and proposals. These types of enforcement actions continue to create challenging issues for practitioners, particularly when potential transactions are still in the early stages of planning and preliminary negotiation.
  • Given that, absent irreparable harm, courts in civil actions have typically concluded that the appropriate remedy for Schedule 13D violations is corrective disclosure, this enforcement action is a reminder to investors, including activists, that Schedule 13D violations can result in monetary liability and, in the case of registered funds and investment advisers, can also have other regulatory consequences.
  • This is a relatively rare example of an SEC enforcement action in an area that is expected to be increasingly important in light of the surge in activist campaigns in recent years. It is also an example of the SEC’s recent enforcement actions related to disclosure obligations in connection with M&A transactions and fights for corporate control. See our other recent articles on these topics: Developments in Disclosure of Financial Advisor Fees in M&A Transactions and SEC and Drugmaker Allergan Reach Settlement over M&A Disclosure Violations.

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