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"Inadvertent" is No Excuse for Untimely Section 16 Filings

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January 15, 2016 | Jennifer Namazi

"Inadvertent" is No Excuse for Untimely Section 16 Filings

It's been a while since I tackled Section 16 reporting in this blog. The last time I covered it, the SEC was on widespread mission to crack down on the smallest of infractions, Section 16(a) included. That was in 2014, and things seem to have quieted since then. Or have they? In today's blog I'll address that question.

All is (not) Quiet on the Section 16 Front

This time last year, there was a fair amount of buzz circulating around about the SEC’s (at the time) newfound aggression in pursuing enforcement for Section 16(a) reporting violations. It was the latest in a line of actions brought by the Commission as part of what SEC Chairman White had described as a “broken windows” initiative, where the agency put focus on frequently overlooked minor violations and highlighted that it was "important to pursue even the smallest infractions.”

While some companies have struggled to file Section 16 reports on a timely basis, the SEC’s ability to identify even the smallest of those infractions has increased greatly in recent years. Advances in technology and renewed attention to enforcement have combined to create an environment where it’s no longer safe to assume that a tiny infraction, even if just an oversight, will be overlooked. Although hype around this type of enforcement has quieted in recent months, it doesn’t mean that SEC attention has waned. Companies should be attentive in pursuing flawless (or near flawless) compliance with Section 16 reporting requirements.

Proxy season is on the horizon for many companies, and although any Section 16(a) reporting violations that happened in the past are what they are, there’s still time to focus on the Item 405 proxy disclosure piece that identifies any late reported Section 16 activity. Effort can also be made to ensure no Section 16 reporting mishaps occur going forward. It’s time to examine opportunities for improvement in these areas.

Inadvertent Mistakes Aren’t a Defense

There was a time where it almost seemed reasonable to say “it was just an inadvertent mistake.” That language appears in the Item 405 disclosure of many proxy statements. Why? Because, the truth is that inadvertent mistakes do happen. What is important to know is that violations of Section 16(a) reporting requirements are enforced only by the SEC, and (key to note) there is no “intent” or other “state of mind requirement” for there to be a “violation”; therefore, inadvertent failures to timely file Section 16 Forms 3, 4 and 5 may constitute violations of the federal reporting requirements. Essentially, nobody had to have “intended” to violate Section 16 in order for there to be an infraction. Additionally, relying on others is not a defense either: (“The insider didn’t give us timely information and therefore, I couldn’t make the filing on time.”)

Since an inadvertent mistake won’t necessarily absolve an issuer (or an insider) from responsibility and potential SEC enforcement action, it’s more important than ever to develop practices that prevent mistakes from occurring in the first place.

Must-Have Section 16 Resources

This month, Section 16 is getting a lot of NASPP coverage. With the goal to achieve "flawless" reporting this year, there's lots to focus on, especially if you have a history of recent Item 405 disclosures in the proxy (pointing to opportunities for improvement in this area).

On January 27, Alan Dye will be doing his annual webcast on the Latest Section 16 Developments (free for NASPP members). Since the SEC's major Section 16 enforcement initiative in late 2014, involving 28 insiders and civil penalties totaling $2.6 million, Section 16 filings have been in the spotlight like never before, commencing a new era of enforcement for the SEC. This is a Q&A webcast, designed to make sure you are equipped to comply. Hear practical tips on refining your Section 16 procedures and answers to your questions on the challenges you are facing today (submit your questions to

We've also got a great interview with Alan Dye that will be featured in the next episode of our Equity Expert podcast series (out next week). Be sure to subscribe today so that you are notified when Alan's interview becomes available. The podcast is all audio, and is accessible on the NASPP website or through a podcast app on your mobile device (search for "Equity Expert"). The podcast is available for free to everyone. If you're not listening to it, you're missing out on some great interviews!

The Jan-Feb issue of The NASPP Advisor is due out next week, and both the Top 10 List and Administrators' Corner articles are dedicated to Section 16 practices. Keep an eye out for it, because you won't want to miss the tips and practices for achieving better compliance with Section 16 reporting requirements.

Watch for and take advantage of these great resources to help improve Section 16 compliance and reporting practices this year.


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