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The federal securities laws and the rules and regulations thereunder generally require the reporting of ownership of securities under the following circumstances.
Any person acquiring direct or indirect beneficial ownership of more than 5% of a class of equity securities of a "publicly owned" corporation (securities registered pursuant to Section 12 of the Securities Exchange Act plus certain other securities) must report that acquisition to the Commission under Section 13(d) of the Securities Exchange Act of 1934. Reporting is not required, however, if the acquisitions in the past twelve months do no exceed 2% of the class. Additional acquisitions must be reported if a person owns more than 5% of the class and the aggregate of all acquisitions exceeds 2% within the past twelve months
In addition, any person planning to make a tender offer which contemplates the acquisition directly or indirectly of more than 5% of any class of equity securities of a publicly held company must file with the Commission a statement containing the information specified in Section 13(d) of the Exchange Act prior to commencing the tender offer.
When the level of beneficial ownership reaches more than 10% of a class of equity securities, the person or persons so acquiring become liable to report such ownership under Section 16(a) of the Act. Thereafter, any change in such ownership must be reported within 10 days after the close of each calendar month in which such change occurs. Reporting under Section 16(a) does not abrogate the requirements of Section 13(d).
In addition to investor reporting, issuing corporations must report holders of more than 10% of any class of equity securities initially upon registration under Section 12(b) of the Act, and on a continuing basis under Section 13(a). Issuers must also report such information with regard to any class of equity securities in most registration statements filed under the Securities Act of 1933.
It should be noted that these reporting requirements apply only to the equity or voting securities of "publicly held companies", with some exceptions including banks, savings and loan associations and those corporations with fewer than 500 shareholders and less than $1 million in assets. Furthermore, enforcement of these reporting requirements presents a number of problems because, through the use of nominees or otherwise, it is not always evident that a person who should be reporting ownership is not, in fact, doing so. Finally, the federal securities laws have no specific requirements with regard to the reporting of ownership by foreign persons.
General Discussion of the Reporting of Securities Ownership
to the Securities and Exchange Commission
Description of Existing Data Collection Activities
1. The information relating to investors and investments contained in the Securities and Exchange Commission ("SEC") files is the result of statutory requirements to provide full and fair disclosure to investors and to protect public investors from fraudulent practices in the securities markets. Disclosure under the federal securities statutues of security holdings is considered necessary because the identity of large investors may be of material significance to present or potential public investors.
The SEC has no existing procedures specifically designed to identify foreign investments in the United States or foreign investors. The federal securities laws, generally, do not make meaningful distinctions based on the nationality of investors. In the case of foreign corporations or governments offering securities to U.S. citizens, there are different, and somewhat less comprehensive, reporting forms used. Under the federal securities laws, citizens of foreign countries and other foreign entities, including governments or subdivisions thereof, may invest freely in our capital markets subject only to the same reporting requirements applicable to domestic investors.
Generally, these reporting requirements apply to investments in publicly held corporations. A person, or group of persons, is required to report his ownership of securities when his investment, or proposed investment, exceeds the level of 5% of a class of equity securities. Issuers are also required to report ownership generally when it exceeds 10% of a class of equity securities. Beneficial ownership of an issuer's equity securities by officers and directors of the issuer must also be reported. Therefore, ownership data reported to the Commission is limited to a level of ownership considered significant to investors and the public.
Since the statutes which the Commission administers do not at present require disclosure of nationality, identification of foreign investments or investors could only be made by indirect means. These are essentially limited to sorting out reporting forms which contain foreign addresses or which lack a U.S. Social Security or taxpayer identification number. The staff of the Commission has attempted to compile a list of foreign investors in this manner and found the results inadequate.
The information required to be submitted to the Commission, with limited exception, is available for inspection by the public in the Commission's Public Reference Room. In a further effort to increase and improve dissemination of information, the Commission has arranged at no cost to the government for a private contractor to design a comprehensive master indexing service for corporate filings both by issuer and by subject matter and to sell hard copy and micro-fiche reproductions of SEC documents.
To further expedite the dissemination of information on investors and investments, the Commission maintains a press room where accredited reporters who represent the leading wire services, business and finance periodicals and
other news media may review on an expedited basis copies of the more important reports filed with the Commission. The Commission also produces a rember of its own publications including:
A daily summary of selected Commission announcements, decisions, orders, rules and rule proposals. It also identifies current reports and applications filed and developments in litigation.
A weekly compilation of the full text of SEC relea.es wider the various federal securities laws.
A monthly summary
Official Summary of Securities Transactions and Holdings
A monthly publication containing, among other things, data on odd and round lot transactions, block distributions, tender offers and acquisitions: a listing of the issuers that have filed reports on current developments; and reports of the proposed sale of unregistered securities.
2.a. Section III of this memorandum sets forth in chart form the various reporting requirements under the federal securities laws, forms to be used, frequency of reporting, statutory authority, and enforcement provisions. Requirements as to disclosure of identity, location, and nature of equity shareholders have been indicated. Generally, a limited partnership also becomes liable for the reporting requirements of the various acts when it has registered a public offering of securities, i.e. limited partnership interests, with the Commission. In this case, it is only the issuing partnership itself which must report, not the individual limited partners.
There are no laws, rules, regulations or procedures specifically requiring the disclosure of information as to holders of short or long term debt of U.S. corporations or holders of real estate as such. However, such information may be obtained indirectly as a result of other reporting requirements. For instance, if short or long term debt is convertible into equity securities or is issued in connection with mergers or acquisitions, information as to the holders of these debt securities may be required to be disclosed. Similarly, the mcrsnip of real estate may be disclosed in connection with reporting requirements for acquisitions, mergers, or transactions involving management and principal holders. However, the circumstances under which such ownership would be disclosed are rare and any resultant information is not organized as such.
2.b. As indicated above, no meaningful distinctions are made under the federal securities laws nor are there any specific agency procedures followed with respect to investments made by foreign persons or governments in United States companies.
The Commission's enforcement powers to ensure compliance with disclosure and reporting requirements are set forth below according to the relevant statute.
Although all of these acts provide for administrative and injunctive remedies and even criminal penalties which can be exacted of persons who do not properly register with or report to the SEC, their applicability to a foreign person may be somewhat different. For example, it is possible to obtain a judgment in a U.S. District Court against a foreign person, and in some circumstances it may even be possible to obtain a receiver for a foreign person over whom such a court has subject matter and in personam jurisdiction.
Enforcement of a decree obtained in a U.S. Court against a foreign person, however, may raise a number of problems. If the foreign person cannot be located in the U.S. and has no business or assets here, then it may not be possible to enforce the court or administrative decree in this country. What, if any, effect is given in a foreign country to a decree obtained in the U.S. will largely depend upon the law of the particular foreign country involved.
However, in a civil action brought in a U.S. Court seeking injunctive relief, the Commission could conceivably request the court to deprive a foreign person of the economic benefits of the ownership of securities of a U.S. corporation and even deprive him of voting rights. While the courts can be requested to take this action, whether a court would grant the request would be a matter for it to decide and would presumably depend upon all of the factors involved. In July 1974, the Court of Appeals for the Seventh Circuit, in the case of Rondeau v. Mosinee Paper Corporation, No. 73-1277 (C.A.7, July 16, 1974), ordered that the voting rights associated with shares acquired after the original due date for a Schedule 13(d) filing, but prior to its actual filing, be suspended with respect to any takeover, proxy contest, or vote for officers and directors for a period of five years.1/
The Securities Act of 1933 ("1933 Act")
Section 19(b) of the Securities Act of 1933 authorizes investigations which, in the opinion of the Commission, are necessary and proper for the enforcement of that statute, and for that purpose officers designated by it are empowered to administer oaths, subpoena witnesses, take evidence, and require the production of any books, papers, or other documents which the Commission deems relevant or material to the inquiry. Attendance of witnesses and the production of documentary evidence may be compelled from any place in the United States.
1/ It should be noted, however, that the Supreme Court granted certiorari in this case on December 16, 1974 (Sup. Ct. No. 74-415).
Section 20(b) authorizes the Commission, whenever it appears that any person is engaged or about to engage in any acts or practices which constitute or would constitute a violation of the provisions of that statute, or any rules or regulations prescribed under the authority thereof, to bring a civil action in any district court in the United States to seek to enjoin such acts or practices.
Section 22(b) provides that in case of refusal to obey a subpoena issued to any person, the Commission may apply to any United States court within the jurisdiction of which the person guilty of refusal is found or resides for an order enforcing the subpoena.
The criminal penalty provisions of the 1933 Act are contained in Section 24 of that Act. They are applicable to all of the provisions of that statute and specifically to any person who, in a registration statement filed under that Act, makes any untrue statements of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. Violation and conviction can result in a fine of not more than $5,000 or imprisonment for not more than five years, or both, for each violation.
The Securities Exchange Act of 1934 ("1934 Act")
Section 21(a) of the Securities Exchange Act authorizes the Commission, in its discretion, to make such investigations as it deems necessary to determine whether any persons have violated or are about to violate any provision of that statute, or any rule or regulation thereunder.
Subsection (b) of that section provides that for the purpose of any such investigation any officer designated by the Commission is empowered to administer oaths and affirmations, subpoena witnesses, compel their attendance, take evidence and require the production of any books, papers, correspondence, memoranda or other records which the Commission deems relevant or material to the inquiry. Attendance of witnesses and the production of records may be required from any place in the United States.
Subsection (c) of that section provides that in case of refusal to obey a subpoena issued to any person, the Commission may invoke the aid of any court of the United States having jurisdiction, in requiring the attendance and testimony of witnesses and the production of records. The court is authorized to issue an order requiring the persons to appear before the officer designated by the Commission and produce records, if so ordered, or to give testimony touching the matter under investigation, and any failure to obey such order of the court may be punished by that court as a contempt.