Over the last couple of months, I’ve looked at proxy statements as they crossed my desk to determine how companies are responding to the amendments to Item 405 adopted last year. The amendments changed the caption for disclosure of Section 16(a) reporting delinquencies from “Section 16(a) Beneficial Ownership Compliance” to “Delinquent Section 16(a) Reports” and added an instruction discouraging issuers from voluntarily disclosing that no delinquencies occurred.
I stopped tallying results after 100 proxy statements, just to keep the calculation of percentages easy. There was nothing scientific about my selection of proxy statements, I just flipped open the ones that came into my possession for various reasons. Here are some stats, for what they’re worth:
Number of companies disclosing delinquencies
42 companies disclosed at least one reporting delinquency, and 22 companies disclosed more than one.
One company disclosed a 10 percent owner’s failure to report, until 2019, over 1,000 transactions that occurred over a period of years. (This happens more often than you might think.)
Nature of Delinquencies
Virtually all of the delinquencies involved late reports or omissions of holdings from a timely filed Form 3. One company disclosed a list of Forms 4 that, although timely filed, included errors in total holdings, transaction codes, exercise prices or ranges of sale prices. Whether these types of errors require disclosure under Item 405 is discussed in Section 8.01 of the Section 16 Treatise and Reporting Guide.
Compliance with new caption requirement
Five of the 42 companies that disclosed reporting delinquencies failed to use the new caption.
Number of companies voluntarily disclosing compliance
Of the 58 companies that did not disclose any reporting delinquencies, 13 included voluntary disclosure that all insiders were compliant. Of those 13 companies, six made the disclosure under the new Item 405 caption, six made the disclosure under the old caption or a caption of their own making and one included disclosure under both captions.
These observations and a few others appear in the March issue of Section 16 Updates, which is currently in the mail. Unfortunately, there is an obvious typo in Updates which says that 52 companies, rather than 58, reported no reporting delinquencies. I proofread better when not working remotely from a laptop.
-Alan Dye, Section16.net April 24, 2020