Insiders Charged For Failure to Update Disclosures In Going Private Transactions

On March 13, 2015, the Securities and Exchange Commission (SEC) charged eight officers, directors, or major shareholders of public companies in connection with going private transactions. According to the SEC, the defendants failed to update their stock ownership disclosures to reflect material changes, including steps to take the companies private. Each of the respondents, without admitting or denying the SEC’s allegations, agreed to settle the proceedings by paying a financial penalty.

The charges involve outdated disclosures in reports filed by “beneficial owners” who hold more than 5 percent of a company’s stock. Federal securities laws require beneficial owners to promptly file an amendment when there is a material change in the facts previously reported by them on Schedule 13D, commonly referred to as a “beneficial ownership report.” The disclosure requirements include plans or proposals that would result in certain transactions, such as a going private transaction.

The SEC’s orders find that the respondents took steps to advance undisclosed plans to effect going private transactions. Some determined the form of the transaction to take the company private, obtained waivers from preferred shareholders, and assisted with shareholder vote projections, while others informed company management of their intention to privatize the company and formed a consortium of shareholders to participate in the going private transaction. As described in the SEC orders, each respective respondent took a series of significant steps that, when viewed together, resulted in a material change from the disclosures that each had previously made in their Schedule 13D filings.

According to the SEC’s orders, some of the respondents also failed to timely report their ownership of securities in the company that was the subject of a going private transaction. In addition, six respondents only disclosed their transactions in company securities months or years after the fact, not within two businesses days, as required for these disclosures by insiders.

The SEC issued the following orders:

Berjaya Lottery Management (H.K.) Ltd.

According to the SEC’s order instituting a settled administrative proceeding, Berjaya Lottery Management (H.K.) Ltd., a Hong Kong corporation, waited eight months to disclose that it had taken steps to effectuate a going private transaction for International Lottery & Totalizator Systems Inc. Berjaya’s failure to promptly amend its disclosure violated Section 13(d)(2) of the Exchange Act and Rule 13d-2(a). Berjaya was ordered to pay a civil money penalty in the amount of $75,000.

The Ciabattoni Living Trust; SMP Investments I, LLC; Anthony J. Ciabattoni; Jane G. Ciabattoni; William A. Houlihan; and Brian Potiker

According to SEC orders instituting a settled administrative proceeding against The Ciabattoni Living Trust and Anthony and Jane Ciabattoni, the Trust and the Ciabattonis waited more than five months to amend their Schedule 13D disclosure after taking steps to effectuate a going private transaction for First Physicians Capital Group, Inc. The Trust and the Ciabattonis failed to promptly amend their disclosure, in violation of Section 13(d)(2) of the Exchange Act and Rule 13d-2(a). The order also found that the Trust and the Ciabattonis violated Section 16(a) by failing to report material transactions in First Physicians Capital Group shares until months or years later. The Ciabattoni Living Trust and the Ciabattonis were ordered to pay a civil money penalty in the amount of $75,000.

In separate SEC orders, the SEC found that SMP Investments I, LLC, and Brian Potiker waited approximately three months to update their Schedule 13D disclosure after taking steps to effectuate a going private transaction for First Physicians Capital Group. SMP and Potiker’s failure to promptly amend their disclosures violated Section 13(d)(2) of the Exchange Act and Rule 13d-2(a). The order also found that SMP and Potiker violated Section 16(a) by failing to report material transactions in First Physicians Capital Group shares until months or years later. SMP and Potiker were ordered to pay a civil money penalty in the amount of $63,750.

According to the SEC’s order instituting settled administrative proceedings against William Houlihan, the SEC found that Houlihan waited approximately five months before amending his previous Schedule 13D after taking a series of steps to effectuate a going private transaction for First Physicians Capital Group. Houlihan’s failure to promptly amend his disclosure violated Section 13(d)(2) of the Exchange Act and Rule 13d-2(a). The order also found that Houlihan violated Section 16(a) by waiting more than five months to report a material transaction in First Physicians Capital Group shares. Houlihan was ordered to pay a civil money penalty in the amount of $15,000.

Shuipan Lin

According to the SEC’s order instituting a settled administrative proceeding, Shuipan Lin, the Chairman and CEO of a China-based Exceed Company Ltd., failed to timely amend his Schedule 13D report after taking steps to effectuate a going private transaction for Exceed. In addition, the order finds that Lin did not file his initial Schedule 13D report until May 2011 even though his filing obligation began in October 2009 when he owned approximately 20% of Exceed’s ordinary shares. Finally, the order finds that Lin failed to amend his Schedule 13D to report a subsequent acquisition

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

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