November 15, 2021

SEC Charges Eight Companies for Failure to Disclose Complete Information on Form NT

By Jing Tian, Senior, Assurance Services

SEC Charges Eight Companies for Failure to Disclose Complete Information on Form NT Capital Markets

Summary

On April 29, 2021, the Securities and Exchange Commission (the SEC) charged eight publicly traded companies for failure to disclose complete information about anticipated changes to financial results on their Form 12b-25 filings. This form, commonly known as Form NT1, is required when a company expects a delayed filing of its quarterly or annual financial report. All of the companies agreed to pay settlements, which ranged from $25,000 to $50,000 depending on the number of deficiently filed Form NTs.

Background

The SEC requires publicly traded companies to file financial reports within certain deadlines. The table below shows the deadlines for different types of filers:

Category of Filer
(Public Float)

Revised Deadlines For Filing Periodic Reports

Form 10-K Deadline

Form 10-Q Deadline

Large Accelerated Filer
($700MM or more)

60 days

40 days

Accelerated Filer
($75MM or more but less than $700MM)

75 days

40 days

Non-Accelerated Filer
(less than $75MM)

90 days

45 days

See Source (2)

Rule 12b-25 and Form NT

It is well known that if a public company is unable to meet the reporting deadline for an annual or quarterly report without unreasonable effort or expense, the company can seek relief and deemed to have filed on time by completing the following steps:

  1. The company must file a Form NT with the SEC no later than one business day after the due date.
  2. The company must disclose in reasonable detail why it was unable to file the report on time and whether or not it anticipates any significant change in financial results compared to the corresponding period from the last fiscal year. If so, the company should attach an explanation of the anticipated change, both narratively and quantitatively.3
  3. The company must file the Form 10-Q within five calendar days of the prescribed due date or the Form 10-K by the fifth calendar day of the prescribed due date.

In each of these charges, the SEC alleged that the companies failed “to provide details disclosing that anticipated restatements or corrections were among the principal reasons for their late filings.”1 Instead, the companies provided short and generic explanations for filing late, such as “due to delays experienced in the collection, compilation and analysis of certain information that may be included in the Quarterly Report.”4

The SEC found that the companies announced restatements or corrections to their financial reports within 4-14 days of their form NT filings despite failing to disclose that anticipated restatements or corrections were among the principal reasons for their late filings. The orders also found that the companies failed to disclose on Form NT that management anticipated a significant change in quarterly income or revenue. Consequently, “investors relying on the deficient Forms NT were kept in the dark regarding the unreliability of the company’s financial reporting or anticipated material changes in operating results.”1

Note that in special circumstances, companies may be unable to meet reporting deadlines for multiple reasons, including the adoption of new accounting standards, employee turnover, pending significant transactions, etc. According to Audit Analytics5, the percentage of companies that utilize Form NT to disclose an anticipated change in financial results has grown from 16% in 2018 to 22% in 2020.

These eight orders reminded public companies that Form NT is more than a notification form for late filings. When they submit a Form NT, companies should convey the root cause for the late filing, provide reasonable detail about the nature of the delay, and ensure subsequent filings are consistent with the information filed in the Form NT.

Conclusion

Ultimately, the SEC highlights the importance of showing integrity and transparency and providing the public with crucial information. The orders remind public companies that stakeholders rely on disclosed financial information to make their investment decisions, and public companies should ensure all required filings are truthful and complete.

Sources

  1. SEC Press Release, “SEC Charges Eight Companies for Failure to Disclose Complete Information on Form NT,” April 29, 2021, https://www.sec.gov/news/press-release/2021-76
  2. SEC Glossary Form 10-K, https://www.investor.gov/introduction-investing/investing-basics/glossary/form-10-k
  3. SEC Form 12b-25, https://www.sec.gov/files/form12b-25.pdf
  4. SEC Order, https://www.sec.gov/litigation/admin/2021/34-91718.pdf
  5. SEC Enforcement Highlights Late Filing Disclosure Risks, https://blog.auditanalytics.com/sec-enforcement-highlights-late-filing-disclosure-risks/