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SEC Fines an Advisory Firm $950,000 for Failing to Timely File a Schedule 13D

In March 2024, an advisory firm settled charges with the U.S. Securities and Exchange Commission (SEC) that it failed to file a Schedule 13D reporting the change in its control purpose. Without admitting or denying the findings, the advisory firm agreed to a cease-and-desist order and a $950,000 civil penalty in order to settle the charges.

A stockholder that acquires more than 5% of a public company’s stock must report its ownership on a Schedule 13D or, if it does not have a control purpose (an intention to influence or control the company), it may use a short-form Schedule 13G in certain circumstances. The advisory firm had previously filed a Schedule 13G, meaning that the advisory firm did not intend to influence or control the company. Following the Schedule 13G filing, the SEC alleges that the advisory firm formed an intention to influence control of the company on April 26, 2022, when the advisory firm first considered making a bid for the company and began preparing an acquisition proposal. The change of intention would have necessitated a filing by no later than May 6, 2022, under the rules at the time. The advisory firm did not make the filing until May 13, 2022, when it actually sent an acquisition proposal to the company. Before the letter to the company and the Schedule 13D filing, abut after April 26, 2022, the advisory firm purchased equity swap agreements from which it was able to profit after the company's stock price went up after the acquisition proposal was announced.

Although unclear from the SEC order, I suspect that the advisory firm took to the position that the intention to control the company did not change until it actually committed to sending the acquisition proposal, as opposed to when it began preparing to do so, without having made a definitive decision. The SEC clearly took the position that taking affirmative steps to making an acquisition proposal was sufficient to require a Schedule 13D filing to report a change of intention. Stockholders intending to make an acquisition bid for a public company should consider when they have begun taking affirmative steps to making an acquisition proposal and update the Schedule 13D or Schedule 13G filings accordingly.

SEC Charges Advisory Firm HG Vora for Disclosure Failures Ahead of Ryder Acquisition Bid


capital markets, corporate & finance, corporate, corporate governance