Missed deadlines on the rise 

Scott Paer, Managing Director, New York at Bladonmore looks at how to avoid getting in trouble with the regulators during reporting season.

With year-end filing looming for the majority of US-listed companies, some will inevitably find themselves on the wrong side of the Securities and Exchange Commission’s (SEC) deadline. While provisions exist for stragglers, the SEC has recently cracked down on companies found guilty of insufficient disclosure in their Forms 12b-25 (often referred to as a Form NT, for ‘not timely’).  

In fact, a spate of SEC enforcement actions from September seems to suggest that a late filing raises red flags with regulators – especially when restatements or corrections hit soon after and receive no mention within the original Form NT. To stay on the right side of the SEC, it is important to come clean with the reason for being late, especially given the sophisticated analytics in use today. 

Enforcement action 

In late August 2023, five companies settled enforcement actions levelled against them by the SEC for deficient disclosure. Without agreeing to or denying the SEC’s assessment, the companies were required to pay between $35,000 and $60,000 apiece in civil penalties. Four of the five companies are headquartered in the US and the remaining one in Hong Kong. The SEC also noted that in April 2021 it had ‘identified and charged eight companies for similar violations.’ 

In its release on the most recent enforcement actions, the SEC notes that each of the companies announced restatements or corrections to financial reporting within three-to-21 days of filing a Form NT. None of these companies disclosed anticipated restatements or corrections as a principal reason for the late filing.  

The SEC also called attention to the fact that a Form NT filing requires a public company to disclose when ‘management anticipated significant changes in results of operations.’ 

The SEC has been cracking down on companies with insufficient disclosure that file financial revisions, not only those implicated in more material financial restatements. So any potential changes that might be needed after filing need thorough and accurate reasoning. 

Tough regulatory environment 

In November, the SEC announced that it had filed a total of 784 enforcement actions in fiscal year 2023, a three percent increase over fiscal year 2022, while the $4.9 bn in financial remedies for fiscal year 2023 was the second highest amount in SEC history. The only year with a greater financial-remedy total was the previous year. 

With SEC enforcements steadily increasing in number as well as in the value of fines levied, taking care to file properly and with candour is more important than ever. In FY 23, 17 percent of standalone SEC enforcement actions were for issuer reporting and audit and accounting infractions. 

US filers should not anticipate a regulatory easing any time soon either. The trend for more SEC enforcement actions is likely to continue in 2024, according to New York-based law firm Patterson Belknap Webb & Tyler. 

The best way for investor relations professionals to deal with each of these problems is to start the reporting process early so that they can file correctly, and on time. Obviously, unforeseen problems may still arise. When they do, it’s more important than ever to state why you are filing late, to be open about any potential adjustments coming down the line and to restate your reasoning with candour when you do refile. 

If you’re looking for help reporting and communicating your financial performance, get in touch. 

 

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Scott Paer

Managing Director, New York

Scott is responsible for driving and overseeing Bladonmore’s New York Office.

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