Advisers Fined for Failing to Disclose Holdings and Large Trader Status
Commentary by Steven Lofchie and Rachael Hashmall
Eleven investment managers settled SEC charges for failing to file Forms 13-F, which requires quarterly public disclosure of the equity portfolios of an entity holding at least $100 million in securities assets.
According to the SEC, institutional investment managers are required to file Forms 13F on a quarterly basis if they exercise investment discretion over "Section 13(f) Securities" having an aggregate fair market value of at least $100 million. (See the SEC Official List of Section 13(f) Securities.) According to the Orders, each investment adviser had investment discretion over at least $100 million of reportable securities and was therefore obligated to file quarterly Forms 13F, but failed to do so. The SEC found that two of the investment advisers also failed to file Form 13H as required for large traders who trade a significant amount of exchange-listed securities.
As a result, the SEC determined that the investment managers violated SEA Section 13(f)(1) ("Periodical and other reports") and SEA Rule 13f-1 ("Reporting by institutional investment managers of information with respect to accounts over which they exercise investment discretion").
To settle the charges, nine firms agreed to pay more than $3.4 million in combined civil penalties. Three firms were not ordered to pay any civil penalties because they self-reported their respective violations.
Commentary
These may be the first enforcement actions for failing to make 13H filings. That the SEC brought 11 enforcement actions for disclosure failures under Section 13(f) should be a warning to others.
Where there is a new "type" of enforcement action, it is not uncommon for it to be the start of a trend. Firms that trade significant amounts of equities and that are not registered would be well advised to confirm that they are not subject to the Rule. Additionally, broker-dealers should identify larger traders and confirm that those procedures are being followed.
Commentary
In the last 20 or so years, there have only been a handful of enforcement actions specifically penalizing firms for a failure to file a 13F, particularly in cases where no other issues, such as fraud, were involved. The SEC has, however, continued to propose new regulations for investment managers on a regular basis, highlighting its clear priority on increasing transparency within the industry.
These enforcement actions serve as a reminder for firms to continuously review their Section 13 filing obligations. Notably, the SEC has shown leniency toward firms that self-reported their violations and made an effort to cooperate with the agency.