Section 13(d)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) requires any person who acquires the beneficial ownership of more than five (5%) percent of any equity security of a class that is registered pursuant to Section 12 of the Exchange Act to file with the United States Securities and Exchange Commission (“SEC”) within ten (10) days, and send to the company and to the exchanges where the company’s stock is traded, a statement containing detailed information concerning the identity and background of the purchaser, its interest in such securities, the source and amount of funds or other consideration, the purpose of the transaction and any contracts, arrangements, understandings or relationships with respect to such securities. Rule 13d-1(a) requires this statement to be filed on Schedule 13D. The Schedule 13D must be complete and accurate and timely filed.
If any material change occurs in the facts as set forth on Schedule 13D, an amendment must be promptly filed. A material change would be deemed to occur, in part, if there is an acquisition or disposition of securities in an amount equal to one (1%) percent or more of the class of securities.
A violation of Section 13(d) may be established by the SEC without showing that the violation arose as a result of intentional conduct. Section 13(d) imposes an affirmative reporting duty on the purchasers of equity securities registered pursuant to Section 12 of the Exchange Act.
There are several remedies available against violators of Section 13(d). On a finding that a purchaser’s Schedule 13D is inaccurate, incomplete or misleading, a federal court has the power to require the filing of an amended Schedule 13D, or in the event that any Schedule(s) 13D was not filed, require the filing of such delinquent Schedule(s) 13D. In other instances, purchasers of securities who have failed to file Schedule(s) 13D have consented to the entry of a cease and desist order by the SEC which requires compliance with Section 13(d). Additionally, in situations where purchasers have repeatedly failed to report securities transactions as required by the Exchange Act, some courts have imposed an injunction, concluding that the purchasers’ past conduct was highly suggestive of the purchasers’ propensity to committing securities law violations and the likelihood that they would commit such violations in the future. A person or entity who has failed to timely file a Schedule 13D, for example, may be enjoined from voting any stock owned in excess of five (5%) percent. Finally, in situations in which a material misrepresentation or omission was intentional, such violation has resulted in criminal sanctions, as well as disgorgement of any profits and prejudgment interest on the amount disgorged.