TheCorporateCounsel.net

I may be seriously dating myself, but I can’t help humming the Pete Seeger song “Where Have All the Flowers Gone?” when preparing proxy statements this season, as it is became clear that all of the annual Schedule 13Gs amendments that we relied on each year to update the beneficial ownership table have disappeared, thanks to the SEC’s 2023 amendments to the Schedule 13D/G reporting requirements. Companies have had to adapt upon discovering that the updated beneficial ownership information that was required to be filed by February 14th each year is no longer available.

Prior to the effective date of the 2023 amendments to Schedule 13D/G filing requirements, beneficial owners who filed on Schedule 13G were required to file annual amendments to Schedule 13G if there had been any change in the previously filed Schedule 13G as of the end the calendar year. The deadline for this annual filing was 45 calendar days after the end of the calendar year, which usually fell on February 14th (unless that day fell on a weekend or holiday), which neatly coincided with the time when most calendar year end companies prepared their proxy statements that must report the beneficial ownership of greater than 5% beneficial owners as of the “most recent practicable date.”

As Liz noted last year, beginning with the quarter ended September 30, 2024, a beneficial owner that files on Schedule 13G is required to file amendments quarterly only if there is a “material” change to its existing disclosure. While the SEC hasn’t expressly defined what constitutes a “material” change, it has pointed to the “reasonable investor” test and Rule 13d-2(a) as instructive. Rule 13d-2(a) deems the acquisition or disposition of beneficial ownership of 1% or more of a covered class as a material change in the Schedule 13D amendment context.

This change in the reporting requirements applicable to beneficial owners is significant for companies, because when it comes to disclosure concerning greater than 5% beneficial owners, Instruction 3 to Item 403 of Regulation S-K states:

The registrant shall be deemed to know the contents of any statements filed with the Commission pursuant to section 13(d) or 13(g) of the Exchange Act. When applicable, a registrant may rely upon information set forth in such statements unless the registrant knows or has reason to believe that such information is not complete or accurate or that a statement or amendment should have been filed and was not.

Further, the Staff has provided the following guidance for determining the beneficial ownership of the greater than 5% beneficial owners in Regulation S-K Compliance and Disclosure Interpretations Question 229.02, which states:

229.02 When asked whether an issuer would be required to consider Form 13-F reports of “investment discretion” in determining the identity of 5 percent beneficial owners under Item 403(a), the Division staff advised that the concept of “investment discretion” was not the same as “beneficial ownership,” noting that investment managers subject to Form 13-F reporting would also have to file Schedule 13D or Schedule 13G if their interest in the securities constituted beneficial ownership. The Division staff emphasized the statement in Item 403 that the issuer could rely on Schedules 13D and 13G, but that such reliance could not be exclusive if it had knowledge (or has reason to believe that such information is not complete or accurate or that a statement or amendment that should have been filed was not) of any 5 percent beneficial owners who had not filed such reports. [Mar. 13, 2007]

The early indications are that companies preparing their Item 403 of Regulation S-K beneficial ownership tables are continuing rely on information set forth in the beneficial owner’s last Schedule 13D or Schedule 13G (or amendment) as permitted by Instruction 3 to Item 403 of Regulation S-K, even when that last filing was not recently filed. The disclosure in the footnotes to the table clearly indicates the date of that source report. Obviously, if a company knows or has reason to believe that the information in the Schedule 13D/G is not complete or accurate when the beneficial ownership table is being prepared, the company does have an obligation to update the information accordingly as specified in Instruction 3 to Item 403(b) of Regulation S-K. As was the case prior to the effective date of the Schedule 13D/G amendments, practice varies as to the extent companies look to information reported on Form 13F, although as Regulation S-K CDIs Question 229.02 notes, Form 13F reporting obligations are based on the concept of “investment discretion,” which is different from the concept of “beneficial ownership.”

– Dave Lynn