On Feb. 21, 2023, the U.S. Securities and Exchange Commission announced a settled administrative proceeding against The Church of Jesus Christ of Latter-day Saints and its investment adviser, Ensign Peak Advisors. The settlement alleges that Ensign Peak failed to file accurate 13F forms over a 22-year period. 

What is a 13F form?

Section 13F of the Securities Exchange Act of 1934 and related rules and forms establish a reporting regime for institutional investment managers. An investment manager that exercises investment discretion on behalf of its clients over more than $100 million of equity securities on an SEC-published list of “section 13(f) securities” is required to file Form 13F.

Form 13F is filed on a 45-day delay after the end of every calendar quarter. Form 13F lists each of the section 13(f) securities owned by clients of the reporting institutional manager in alphabetical order and reports the number and value of the shares owned as of the last day of the quarter.

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How is 13F reporting used?

Form 13F reporting is widely regarded as one of the least meaningful tools that the SEC has to monitor institutional investment managers and securities market risk.

A 2010 report by the SEC’s Office of Inspector General noted that “despite Congressional intent that the SEC would be expected to make extensive use of the Section 13(f) information for regulatory and oversight purposes, no SEC division or office conducts any regular or systematic review of data filed on Form 13F.”

As a practical matter, Form 13F information has limited utility to the SEC because the SEC has access to a wide variety of more relevant (and detailed) market information on a more current basis. The 45-day delay in filing and the lack of a requirement to provide information about short sales, swaps and options that may offset the economic exposure of the reported equity security ownership result in the SEC having only limited insight into the actual portfolio management activities of the reporting institutional investment manager from Form 13F reports.

The SEC’s reliance on other tools, reports and means of market surveillance is understandable in light of the limitations on Form 13F data.

A technical violation?

Notwithstanding the limitations on the data provided on Form 13F, various market participants and other interested parties analyze and consider the investment activities of institutional investment managers in formulating their own investment strategies. There is an entire cottage industry devoted to reviewing publicly available Forms 13F in an attempt to duplicate the investment activities of prominent investment managers.

Perhaps for that reason, virtually every institutional investment manager who is required to file Form 13F does so begrudgingly. In that respect, Ensign Peak is hardly unique in its desire not to provide Form 13F information. No other industry is required to publish its most sensitive and valuable trade secrets on a quarterly basis.

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None of the limited utility of Form 13F data to the SEC, the potentially distorted information provided by Form 13F, or the intrusive nature of the reporting requirement, however, excuses the conduct by Ensign Peak alleged in the SEC administrative proceeding. There can be a fine line between designing a regime in an effort to comply with the law and engaging in a deliberate effort to evade the law, and the SEC clearly believes that Ensign Peak crossed that line.

Still, in the pantheon of federal securities law violations, failure to file Form 13F is largely regarded as a technical violation.

Several elements of the settled administrative proceeding support the conclusion that the alleged violation was largely technical.

  • First, the settlement alleges only violations of section 13(f) of the Exchange Act and rule 13f-1 thereunder, and not any of the broad anti-fraud provisions under the federal securities laws often cited by the SEC in settled administrative proceedings.
  • Second, the settlement does not impose a requirement to disgorge any improper financial benefits from the failure to file Forms 13F. The absence of a disgorgement requirement supports the conclusion that the SEC did not identify any financial impropriety or improper conduct that resulted in a financial benefit to Ensign Peak. Otherwise, one can assume that the SEC would have imposed a disgorgement requirement in addition to the penalty.
  • Finally, apart from the requirement to cease and desist and pay an administrative penalty, the settlement does not impose any additional undertakings or remedial steps common in settled SEC administrative proceedings, likely because Ensign Peak corrected its Forms 13F.

The settled administrative proceeding is a painful and expensive reminder that even the most technical requirements of the federal securities laws matter.

James E. Anderson is a partner in the Washington, D.C., office of Willkie, Farr & Gallagher LLP. He is a member of the firm’s asset management department and chair of the regulatory and enforcement practice. 

John M. Faust is a partner in the Washington, D.C., office of Akerman LLP. He is a member of the firm’s investment management practice group in the corporate department.

The views expressed are those of the authors and not necessarily those of their respective firms, partners or clients.