SEC Announces Charges Against Corporate Insiders for Violating Laws Requiring Prompt Reporting of Transactions and Holdings

The Securities and Exchange Commission today announced charges against 28 officers, directors, or major shareholders for violating federal securities laws requiring them to promptly report information about their holdings and transactions in company stock.  Six publicly-traded companies were charged for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies.

The charges stem from an SEC enforcement initiative focusing on two types of ownership reports that give investors the opportunity to evaluate whether the holdings and transactions of company insiders could be indicative of the company’s future prospects.  Form 4 is a report that corporate officers, directors, and certain beneficial owners of more than 10 percent of a registered class of a company’s stock must use to report their transactions in company stock within two business days.  Schedule 13D and 13G are reports that beneficial owners of more than 5 percent of a registered class of a company’s stock must use to report holdings or intentions with respect to the company.  SEC enforcement staff used quantitative data sources and ranking algorithms to identify these insiders as repeatedly filing late.  Some filings were delayed by weeks, months, or even years. 

A total of 33 of the 34 individuals and companies named in the SEC’s orders agreed to settle the charges and pay financial penalties totaling $2.6 million.

“Using quantitative analytics, we identified individuals and companies with especially high rates of filing deficiencies, and we are bringing these actions together to send a clear message about the importance of these filing provisions,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “Officers, directors, major shareholders, and issuers should all take note: inadvertence is no defense to filing violations, and we will vigorously police these sorts of violations through streamlined actions.”

Andrew M. Calamari, Director of the SEC’s New York Regional Office, added, “The reporting requirements in the federal securities laws are not mere suggestions, they are legal obligations that must be obeyed.  Those who fail to do so run the risk of facing an SEC enforcement action.”

These reporting requirements under Section 16(a) of the Securities Exchange Act of 1934 and under Section 13(d) or (g) of the Exchange Act apply irrespective of profits or a person’s reasons for acquiring holdings or engaging in transactions.  The failure to timely file a required beneficial ownership report, even if inadvertent, constitutes a violation of these rules.

The SEC’s orders named 13 individuals who were officers or directors of public companies:

• Ligang Wang, vice president of China Shen Zhou Mining & Resources, is alleged by the SEC’s Division of Enforcement to have failed to file – on time or at all – reports of his sales of more than 165,000 shares of company stock with a market value of more than $1 million. The Division of Enforcement will litigate the charges against him in an administrative proceeding before an administrative law judge.
• Paul D. Arling, CEO and chairman of the board of directors of Universal Electronics Inc., agreed to pay a $60,375 penalty.
• Paul C. Cronson, a director of eMagin Corporation, agreed to pay a $47,250 penalty.
• Bradley S. Forsyth, CFO and chief accounting officer of Willis Lease Finance Corporation, agreed to pay a $25,000 penalty.
• Stephen Gans, a director and beneficial owner of Digital Ally Inc., agreed to pay a $100,000 penalty.
• Sidney C. Hooper, CFO and principal accounting officer of Sutron Corporation, agreed to pay a $34,125 penalty.
• Edgar W. Levin, a director of Dorman Products Inc., agreed to pay a $46,300 penalty.
• Raul S. McQuivey, CEO, chairman of the board of directors, and a beneficial owner of Sutron Corporation, agreed to pay a $60,000 penalty.
• Donald A. Nunemaker, president of Willis Lease Finance Corporation, agreed to pay a $25,000 penalty.
• Thomas C. Nord, general counsel and senior vice president of Willis Lease Finance Corporation, agreed to pay a $78,500 penalty.
• Alan M. Schnaid, principal accounting officer and corporate controller of Starwood Hotels & Resorts Worldwide, agreed to pay a $25,000 penalty.
• Justin Tang, a director of ChinaCast Education Corporation, agreed to pay a $100,000 penalty.
• Charles F. Willis IV, CEO, chairman of the board of directors, and a beneficial owner of Willis Lease Finance Corporation, agreed to pay a $75,000 penalty.

The SEC’s orders named five individuals who were beneficial owners of publicly-traded companies:

• Stephen Adams, a beneficial owner of Solar Senior Capital Ltd. shares, agreed to pay a $100,000 penalty.
• Thomas J. Edelman, a beneficial owner of BioFuel Energy Corporation shares, agreed to pay a $64,125 penalty.
• Neil Gagnon, a beneficial owner of General Finance Corporation and NTS Inc. shares, agreed to pay a $75,000 penalty.
• Peter R. Kellogg, a beneficial owner of Mercer International Inc., TRC Companies Inc., Evans & Sutherland Computer Corp., and MFC Industrial Ltd. shares, agreed to pay a $100,000 penalty.
• Gregory M. Shepard, a beneficial owner of Donegal Group Inc.’s Class A common stock, agreed to pay an $80,000 penalty.

The SEC’s orders named 10 investment firms in connection with beneficial ownership of publicly-traded companies:

• Brown Brothers Harriman & Co. agreed to pay a $120,000 penalty.
• Del Mar Asset Management LP agreed to pay a $66,000 penalty.
• Lazarus Management Company LLC agreed to pay a $60,000 penalty.
• P.A.W. Capital Partners LP agreed to pay a $68,000 penalty.
• Ridgeback Capital Management LP agreed to pay a $104,500 penalty.
• RIMA Senvest Management LLC agreed to pay a $64,000 penalty.
• The Royal Bank of Scotland Group plc agreed to pay a $120,000 penalty.
• Sankaty Advisors LLC agreed to pay a $68,000 penalty.
• Security Capital Research & Management agreed to pay an $88,000 penalty.
• Trinad Management LLC agreed to pay a $95,000 penalty.

The SEC’s orders named six publicly-traded companies for contributing to filing failures by insiders or failing to report their insiders’ filing delinquencies:

• Jones Lang LaSalle Incorporated agreed to pay a $150,000 penalty.
• KMG Chemicals Inc. agreed to pay a $150,000 penalty.
• Starwood Hotel & Resorts Worldwide Inc. agreed to pay a $75,000 penalty. 
• Tel-Instrument Electronics Corp. agreed to pay a $75,000 penalty.
• Universal Electronics Inc. agreed to pay a $75,000 penalty.
• Willis Lease Finance Corporation agreed to pay a $150,000 penalty.

The SEC’s investigations were conducted out of the New York Regional Office and led by Wendy B. Tepperman, Christina M. McGill, and Joshua R. Geller with assistance from Kristin M. Pauley and Debbie Chan.  The Enforcement Division worked in close collaboration with Michael P. Fioribello of the SEC’s National Exam Program and Anne M. Krauskopf and Nicholas P. Panos in the agency’s Division of Corporation Finance.  Jack Kaufman will lead the SEC Enforcement Division’s litigation against Wang.  The cases have been supervised by Sanjay Wadhwa.