Blog: SEC Enforcement Co-Director discusses COVID-19-related enforcement priorities

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In his keynote address to Securities Enforcement Forum West 2020, SEC Enforcement Co-Director Steven Peikin discussed some of the efforts of  the Division of Enforcement to detect misconduct arising out of the COVID-19 pandemic and related market disruption, including the formation of a steering committee to proactively identify and monitor areas of potential misconduct.  Of particular interest here are the focus on insider trading and financial and disclosure-related fraud.

First, Peikin observed, market volatility, together with a “regular stream of potentially market-moving announcements,” has led to “increased opportunities for insider trading and market manipulation.”  He noted that the steering committee is monitoring trading activity around issuer announcements “in industries particularly impacted by COVID-19” and “other suspicious market movements for possible manipulation.”

In addition, historically, the stresses of economic downturns have led to increased risk for investors from financial and disclosure-related fraud

“in two ways: exposing pre-existing accounting or disclosure improprieties, or leading issuers to engage in improper conduct. As a result, structural risks such as excessive debt, extreme leverage, and possible liquidity disruptions, could be indications of potential issues. Recognizing that the economic impacts of any downturn may vary across different industries and sectors, the Steering Committee has developed a systematic process to review public filings from issuers in highly-impacted industries, with a focus on identifying disclosures that appear to be significantly out of step with others in the same industry.”

The committee is also on the hunt for “disclosures, impairments, or valuations that may attempt to disguise previously undisclosed problems or weaknesses as coronavirus-related.”

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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