U.S. regulators have sanctioned 10 small issuers for disclosure failures in connection with unregistered financings that resulted in the dilution of their stocks.
The U.S. Securities and Exchange Commission (SEC) said Wednesday its investigations found that each of the 10 companies failed to make the required disclosure of a stock dilution scenario. Three of the companies also failed to use accurate numbers when later reporting the dilution of their common stock in quarterly or annual reports, the commission adds.
The companies all agreed to settle the charges, without admitting or denying the violations. And, the SEC assessed a total of US$350,000 in penalties in those settlements, ranging from US$25,000 to US$50,000 per firm.
The commission notes that companies are required to file a report informing investors when shares of common stock are sold in transactions that are not registered with the SEC that represent at least 5% of their total outstanding stock. They’re also required to report when they enter into a financing agreement not made in the ordinary course of business. “These disclosures enable investors to be aware that stock dilution has occurred as a company issues additional shares in a financing transaction or other unregistered sale that has the effect of reducing the earnings per share and an investor’s percentage of ownership in the company,” it says.
“Public issuers must ensure that their SEC filings contain all required information so that investors can base decisions on current and accurate information,” said Andrew Ceresney, director of the SEC’s division of enforcement. “These enforcement actions reinforce the ongoing need for full disclosure to shareholders concerning an issuer’s entry into highly dilutive financing agreements.”