On August 22, the Securities and Exchange Commission announced settled enforcement actions against five companies for violations of Exchange Act Rule 12b-25, which requires a notification to be filed whenever a company does not file its Form 10-K or 10-Q by the prescribed due date. This is the second time in recent years that the SEC has conducted an enforcement sweep based on violations of Rule 12b-25, and it serves as an important reminder of the need to comply with the substantive disclosure requirements when filing Forms 12b-25 (which are filed on EDGAR using the tag “NT 10-K” or “NT 10-Q”).
Rule 12b-25 requires a company that is not filing a Form 10-K or Form 10-Q by its prescribed due date to file a Form 12b-25 within one business day after that prescribed due date. While many think of Form 12b-25 as an “extension” form, it is more (and less) than just that. As noted, it is required to be filed whenever the due date for a Form 10-K or 10-Q is missed and to include the required disclosures. If a company believes it will file its Form 10-K or Form 10-Q by the extended due dates (15 calendar days for a Form 10-K and 5 calendar days for a Form 10-Q), it can check the extension box. But companies that do not believe they will be able to file their report by the extended due date (and therefore cannot check the extension box), for example because of a prolonged restatement process, are still required to file a Form 12b-25.
Form 12b-25 requires the company to disclose (1) why it could not file its Form 10-K or 10-Q within the prescribed time period “in reasonable detail”; and (2) whether the company anticipates that it will report any significant change in results of operations from the corresponding period for the last fiscal year when it does file the Form 10-K or 10-Q. If any such significant change is expected, the company must provide a narrative and quantitative discussion of the change and, if appropriate, provide the reasons why a reasonable estimate of results cannot be made.
In all five of the latest enforcement actions, the SEC found that the companies violated Rule 12b-25 by failing to disclose in their Forms 12b-25 that the inability to meet the filing deadlines was caused by the discovery and ongoing correction of errors in financial reporting in previously filed reports. The SEC noted that the companies “failed to disclose any of this information, much less provide the detailed narratives and quantitative explanation specifically called for by [Form 12b-25].” Notably, each of the five actions involved companies that announced restatements or corrections to previously filed financial statements within 3–21 days of their Form 12b-25 filings. As part of the settlements, the five companies consented to cease-and-desist orders and agreed to pay penalties ranging from $35,000 to $60,000, while neither admitting nor denying the SEC’s findings.
The recent settlements mirror a similar enforcement sweep in April 2021, in which the SEC targeted eight companies for violations of Rule 12b-25 by failing to disclose in their Forms 12b-25 that the delay in meeting the prescribed due date for their reports was caused by an anticipated restatement or correction of prior financial reporting. Both sets of enforcement actions underscore the SEC’s ability and determination to charge companies with violations of Rule 12b-25, an undertaking that is made easier by the SEC’s use of data analytics to flag potential violations.
When filing a Form 12b-25, companies must remember the form is not simply a notice of inability to file a report on a timely basis and/or a way to extend the due date, but rather a substantive disclosure document. Therefore, companies should take care to clearly and accurately disclose why they could not file their periodic report within the prescribed time period and whether there are any anticipated, significant changes in results of operations from the corresponding period for the last fiscal year.