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Advanced SEC Filing, lessons learned Guiding nsb Corporation and Investment

Management firms

By Arthur Mboue

Mastering the owners filing of SEC forms

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Learning ObjectivesNext slides will help us understand the filing requirements of the owners of the securities and their trouble shootings (Let revisit Rule 16 and 13)

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Introduction of ownershipSome investors are called to disclose the nature of their relationship with the registered firm. These investors are required to file with the SEC special forms based on their identification to the company and their level of ownership including

– Institutional ownership– Beneficial ownership– Insiders ownership– OTC ownership

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BENEFICIAL OWNERSHIP DISCLOSURE

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Section 13 reporting of beneficial owners

Forms deadline Events sample13 D Due within

10 days of acquisition (i.e the trade date rather than the settlement date)

• The 13D form disclose information about the identity and background of each filing person, number of shares, any plans…

• Identifies all parties with voting or selling authority, passive investors must file 13D when their investment stake exceed 5% and stay between 5% to 10% of the company’s stock

• Person ‘beneficially owns’ any registered security if he either has or shares direct or indirect power to vote, sell or determine the disposition of that security. A person is also deemed the beneficial owner of any securities that such person has the right to acquire within sixty days that means exercise of an option or conversion or exchange of another security

• Section 13D filing requirements also apply to any ‘group’ who beneficially owns 5 % or more of a class of an issuer’s equity securities. A group is formed when two or more persons agree to act together to acquire, hold, vote, or dispose of securities.

• This includes intent to exercise some control over it including an attempted hostile takeover

• An acquisition is not limited to a purchase• The formation of a group may result in an acquisition of the securities even if no

purchase occurred• If two or kore holders are required to file a statement containing the information

required by Schedule 13 D with respect to the same securities, only one statement needs to be filed (jointly)

• Any investor who after acquiring directly or indirectly the beneficial ownership of 5 percent or more of any equity security of a class is obligated to file either 13 D or 13 G to the SEC

SC 13 D

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Section 13 reporting of beneficial owners

Forms deadline Events sample13G • Due within 45 days

after the end of each calendar year after 5 % ownership AND within 10 days of the end of the calendar month after 10% (qualified institutional investor)

• Within 10 days of the acquisition (Passive investor)

• Due within 45 days after the end of each calendar year (exempt investors)

13G form is a much abbreviated version of 13D form. It is only available for use by a limited category of ‘person’ (such as banks, brokers/dealers, and insurance companies) only when the securities were acquired in the ordinary course of business and not with the purpose or effect of changing or influencing the control of the target. This is an annual filing which must be filed by passive investors, bidder or non bidder, when their investment exceeds 10%. If the investor begins to exert some influence or control over a company,

then SC 13D must be filed instead Groups of qualified institutions and parents or control persons of

qualified institutions maybe themselves qualified institutional investors A passive investor must hold less than 20 percent of a class of equity

securities Two types of exempt investor, persons exempt pursuant to Section 13(d)

(6) and persons who acquired beneficial ownership of more than 5 percent of a class of equity securities that were not registered at the time of the acquisition but subsequently were registered normally are not required to file Schedule 13D

If two or more investors are required to file a statement containing the information required by Schedule 13G with respect to the same securities, only one statement needs to be filed

• Any investor who after acquiring directly or indirectly the beneficial ownership of 5 percent or more of any equity security of a class is obligate to file either 13 D or 13 G to the SEC

SC 13 G

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List of Passive Owners• Broker or dealer• Bank• Insurance investment company • Any registered investment adviser• Employee benefit plan• Parent holding company• Savings association • Non-US institution • A group

– They have acquired such securities in the ordinary course of business and not with purpose, nor with effect of changing or influencing the control of the issuer, nor in connection with or as a participant in any transaction having such purpose or effect including nomination

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INSTITUTIONAL OWNERSHIP DISCLOSURE

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Section 13 F- reporting of institutional owners

Forms Deadlines events sample

13F Due within 45 days after close of the fiscal quarter• 2015 Q4, Feb 16, 2016• 2016, Q1, 5/16/2016• 2016, Q2, 8/15/2016• 2016, Q3, 11/14/2016

A quarterly report of equity holdings is required of all institutions with equity assets of $100 Million or more. The institutional investment managers must use the U.S mail in the course of their business and he must exercise investment discretion over $100 Million or more in Section 13F

13 F

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What is an institutional Investment Manager

• He is an entity that either invests in, or buys and sells, securities for its own account.– Banks– Insurance companies– Broker/dealers– Corporation and pension funds that manage their own investment portfolios

• He is also a natural person or an entity that exercises investment discretion over the account of any natural person or entity– Investment adviser that manages private accounts, mutual fund assets or

pension plan assets– Trust department of a bank

• A trustee is an institutional investment manager, but a natural person who exercises investment discretion over his or her own account is not an institutional investment manager

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What is investment discretion

• The manager exercises investment discretion if :– The manager has the power to determine which

securities are bought or sold for the account (s) under management, or

– Manager makes decisions about which securities are bought or sold for the account (s), even though someone else is responsible for the investment decisions

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Basic data in the form 13 F and different types of 13 F forms

• Basic data– The issuer name (listed alphabetical order)– Description of the class of security listed– The number of shares owned, and– The fair market value of the securities listed, as of the end of

the calendar quarter• Different types of 13 F form

– 13F Holdings Report 13F-HR– 13 F Combination Report 13F-HR– 13 F Notice 13 F-NT– 13 F pre date 13F-E (it is obsolete)

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INSIDER OWNERSHIP DISCLOSURE

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Insiders ownership reporting

forms deadlines events sample3 Due 10 days after the event by which the

individual is designated an officer of the company. It must be filed in EDGAR

Each newly minted Section 16 officer must file an ‘Initial Statement of Beneficial Ownership of Securities’ on Form 3. It contains information about the officer relationship with the company and his/her ownership

4 Due by the end of the second day after the transaction. It must be filed in EDGARIF transaction handled by third party who exercises the option on behalf of the filer, the third party has three days to notify the filer of the transaction. The filer then must file by the end of the second day after notification

Transactions leading to the amendments of form 3 reporting a sale or more acquisition of company securities authorized by the insiders owners of securities must be filed on Form 4

5 Due 45 days after the end of the insider owner company’s fiscal year unless the officer has previously reported on Form 4 all changes in beneficial ownership. It must be filed in EDGAR

At the end of the insider company’s fiscal year, annual filing to the SEC summarizing the position of the insider is sometimes required

Under Section 16(a) of the Exchange Act, each insider is required to file with the SEC various forms indicating their ownership of or transactions in the company’s securities, including common stock and derivative securities (stock options and restricted stock units)

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Who is a Section 16 Officer?• Decisions regarding who is a Section 16 officer are generally

made each year by the company’s Board of Directors to approve the CEO’s proposal. But, to avoid SEC staff comment and any possible derivative lawsuit, company must rely on 3 definitions from the SEC as guidelines– Rule 16a-1 (f)– Rule 3b-7 and – item 402 (b)

• The final rule: any position with 2 out 3 yes will qualify as a definitive Section 16 officer (company may typically have between 6 and 12 Section 16 officers)

Next 3 slides will help you to understand how I came up with the following table; it is not out of vacuum. It is a good assessment

a good counsel/adviser must do

Rule 16a-1 (f)• The term “officer’ shall mean an issuer’s president, principal

financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function, or any other person who performs similar policy making functions for the issuer. Officers of the issuer’s parent(s) or subsidiaries shall be deemed officers of the issuer if they perform such policy making functions for the issuer. In addition, when the issuer is a limited partnership, officers or employees of the general partner(s) who perform policy making functions for the limited partnership are deemed officers of the limited partnership. When the issuer is a trust, officers or employees of the trustee(s) who perform policy making functions for the trust that are deemed officers of the trust.

Rule 3b-7-Definition of ‘executive officer’

• The term executive officer, when used with reference to a registrant means its president, any vice president of the registrant in charge of a principal, business unit, division or function (such sales, administration or finance), any other officer who performs similar policy making functions for the registrant. Executive officers of subsidiaries may be deemed executive officers of the registrant if they perform such policy making function for the registrant.

Executive Compensation, item 402 (b), ‘Named Executive Officers’

• (3) Persons covered. Disclosure shall be provided pursuant to this item for each of the following (the ‘named executive officers’):i. All individuals serving as the registrant’s principal executive officer or acting

in a similar capacity during the last completed fiscal year (“PEO”), regardless of compensation level;

ii. All individuals serving as the registrant’s principal financial officer or acting in a similar capacity during the last completed fiscal year (“PFO”), regardless of compensation level;

iii. The registrant’s three most highly compensated executive officers other than the PEO and PFO who were serving as executive officers at the end of the last completed fiscal year; end

iv. Up to two additional individuals for whom disclosure would have been provided pursuant to paragraph (a)(3)(iii) of this Item but for the fact that the individual was not serving as an executive officer of the registrant at the end of the last completed fiscal year.

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Tabular representation of possible Section 16 OfficerPosition or Criteria ‘Officer’ under

Rule 16a-1(f)“Executive Officer’ under Rule 3b-7

‘Named Executive Officer’ under Rule item 402 (b) of Reg S-K

President/CEO Yes Yes Yes

Principal Financial Officer Yes Yes Yes

Principal Accounting Officer ( controller)

Yes *Yes May be

Vice President in charge of principal business unit, divisions or function

Yes Yes May be

Any other officer who performs similar policy functions for the company

Yes Yes May Be

Any other officer who performs a policy making functions

Yes Yes May be

Executive officers of subsidiaries who perform policy making functions for the company

Yes Yes May be

* The problem with PAO is that sometimes his policy function is directed by the PFO, it is why not all companies classify this position as a policy making function in chief. A strong example comes from small companies where the CFO is in charge of both accounting and finance

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Controlling former Executives/directors filing of shares ownerships, step by step

1. Review his last 6 months shares ownership and transactions before cessation of work including retirement, resignation and alike

2. Review his first 6 months of shares ownership and transactions after his cessation of work

3. Review the corporate insider lists 1. Does he still have insider data that can MATERIALLY change the value

of the corporation or/and is he still on the list of company officer approved by the BoD, if yes

4. Assess his/her actual percentage of share ownership of the company

5. Verify his SEC ID form/number and access code6. File his/her forms

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Controlling newly appointed Section 16 officer of the company filing of share ownership of the company,

step by step1. Filing of form ID to the SEC2. Reception of EDGAR CID number and access code3. Filing of forms through

1. Company (with power of attorney, staff of the securities and Governance counsel office or SEC reporting office will file the ‘initial statement of beneficial ownership of securities’ for the new section 16 officer of the company )

1. Internet: www.sec.gov2. Dial up number

2. Outsourcing Services (it can file the initial statement of beneficial ownership of securities’ for the new section 16 officer of the company, sometimes it is an incentive provided by the company contractual compensation package)

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Director/Officer questionnaire • In addition to this questionnaire, counsel and SEC external reporting staff must check with the

company’s stock plan administrator for details and accuracies on outstanding and new option and stock grants to directors and officers

Director and Officer Proxy statement Questionnaire

All the company’s directors and officers are being asked to respond to this questionnaire. It is intended to help determine your independence and any related party disclosures required in accordance with the rules of the Securities and Exchange Commission and any related stock exchanges regulations. Please complete this questionnaire for full and adequate disclosure. If a specific question is not applicable, please indicate ‘Not Applicable’ or ‘NA’. If you require additional space for answering a question, attach extra sheets. Please do not leave any questions unanswered. Please complete, sign, date and return one copy of this questionnaire to the office ________________________.

1. Please provide the following personal information:[SEC reg S-K, items 401(a) and (b)] Name: _______________________________________ Address: _____________________________________

__________________________________________

__________________________________________

Date of Birth: ____ / ____ / ____ [SEC reg S-K, item 401(d)

2. Do you have a family member or relative who is also a director or officer of this company? ___ No ___ Yes [SEC reg S-K, items 401(a), (b),(c)]

If Yes, please disclose this relationship:

___________________________________________________________________

___________________________________________________________________

___________________________________________________________________

3. Describe your present occupation and position: Job Title / Retired : ____________________________________________________

Employer Name: ______________________________________________________

Principal Business: ____________________________________________________

Number of Years in this Position: ________

4. List prior occupations and positions (during last ten years) Start Date Stop Date Title Employer

___/___ ___ /___ ______________________ ________________________

___/___ ___ /___ ______________________ ________________________

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Blackout periods• A trading blackout period is a time period in which the

company prohibits Section 16 insiders and others employees and consultants who have access to material non public information about the company from buying and selling the company securities– Start 2 to 4 weeks before the end of the quarter and

end after the 2nd full business day following the company’s earnings release for that quarter

– Preclearance is needed for all insiders because of BTR (Blackout Trading Restriction)

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Over The Counter Ownership- 10 C and 13 H

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OTC Ownership 10-C and 13 Hform Due date descriptions sample

10-C The report must be file within ten days of such change

This form must be filed by an issuer whose securities are quoted on the NASDAQ inter dealer quotation system. It will report any change that exceeds five percent in the number of shares of the class outstanding and any change in the name of issuer.

13 H Filed within 45 days of the calendars year end

Filed by certain entities that exercise investment discretion over trading in NMS securities in excess of started thresholds, (1) during any calendar day 2 Million shares or shares with fair market value of $20 Million or (2) during any calendar month 20 Million shares or shares with a fair market value of $200 Million