How to Understand SEC Noncompliance Penalties

The U.S. Securities and Exchange Commission (SEC) is dedicated to protecting investors and ensuring that the sales and trade of U.S.-based stocks and securities are carried out as mandated by U.S. law. The SEC regulates the securities market with a list of compliance regulations. The penalties for noncompliance include civil action in U.S. District Court, fines and trading suspensions. Most large businesses and corporations hire an SEC securities adviser to ensure compliance.

Instructions

Difficulty: Moderate

Things You’ll Need:

• Phone
• Computer with Internet access

Comply with SEC Requirements

1. Appoint a responsible party who will provide an assessment of SEC compliance. Some companies choose to hire an external SEC compliance consultant or an attorney who specializes in SEC compliance.
2. File the SEC-required 10-K form within 60 days after the end of your company's fiscal year. This form can be downloaded from the SEC Forms list (see Resources below). You can choose to send this 10-K form to your shareholders instead of an annual report.
3. Ensure your accounting department or firm uses the SEC's servicing criteria. This includes four categories: cash collection, asset administration, servicing considerations and investor remittances.

Understand the SEC Noncompliance Penalties

4. Keep up to date with the latest information posted on the SEC's Division of Enforcement Web site (see Resources below). Although standard penalties are not listed, you can read about Federal court actions, trading suspensions and selected auditing enforcement releases.
5. Take all SEC regulations seriously. The SEC can bring federal court proceedings against corporations who choose not to comply with their regulations. Insider trading may result in injunctions, convictions for guilty parties and a possible request for repayment of illegal gains as well as a civil penalty.
6. Consider that the SEC can suspend trading for 10 trading days to protect investors. The SEC does not announce pending trading suspensions, as they are considered confidential. Following a suspension, the SEC may investigate a company to verify that it did not commit fraud.

Tips & Warnings

• New rules proposed by the SEC generally take 3 months to go into effect. If you frequently read the SEC's Final Rule Release page, you'll have enough lead time to comfortably implement any changes necessary.
• If your company does not understand and follow SEC laws, you run the risk of incurring an SEC audit, which could lead to a civil suit in a U.S. District Court, or SEC-imposed fines or suspensions.
• Be sure you honor any shareholders' requests to view a copy of the annual 10-K form. The SEC mandates that you make this form available on request.