During these unprecedented times, the Securities and Exchange Commission (“SEC”) Division of Enforcement (“Division”) is keeping a close watch on activity that may run afoul of the federal securities laws and is reminding everyone that obligations to safeguard material nonpublic information are as important as ever.
On March 23, 2020, Co-Directors of the Division, Stephanie Avakian and Steven Peiken, issued a statement regarding market integrity.[1] Noting that COVID-19 has impacted the securities markets in unprecedented ways, the Co-Directors confirmed that the SEC, other governmental authorities, and market participants have worked to ensure that the markets have continued to function, as many have transitioned to telework and instituted business continuity plans.
In their statement, the Co-Directors emphasized “the importance of maintaining market integrity and following corporate controls and procedures,” particularly in present circumstances when corporate insiders are regularly learning new material nonpublic information that may hold greater value than under normal circumstances. A greater number of people may have access to material nonpublic information when, for example, earnings reports or SEC disclosure filings are being delayed due to the crisis.
The Co-Directors cautioned that those in possession of such information – including directors, officers, employees, consultants, and other outside professionals – should be mindful of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading. Similarly, they urged public companies to be mindful of their established disclosure controls and procedures, insider trading prohibitions, codes of ethics, and Regulation FD and selective disclosure prohibitions. Broker-dealers, investment advisers, and other registrants should likewise ensure that they are complying with policies and procedures designed to prevent the misuse of material nonpublic information.
Referencing the Co-Directors’ statement in a statement he made on March 26, SEC Chairman Jay Clayton similarly wanted “any bad actor who would seek to use this challenging time to take advantage of our investors or our markets to know: the women and the men of the SEC are watching.”[2]
In response to the highly unusual environment created by the crisis, public companies and their professionals and advisors should remind directors, officers, and employees to be especially mindful of the controls and procedures in place regarding the dissemination of material nonpublic information. These controls take on an added importance during a time when most employees are working remotely, and nonpublic information is being disseminated way beyond the boardroom. They should be strictly adhered to and enforced to avoid regulatory scrutiny.
[1] SEC Division of Enforcement Co-Directors Stephanie Avakian and Steven Peikin, Statement from Stephanie Avakian and Steven Peiken, Co-Directors of the SEC’s Division of Enforcement, Regarding Market Integrity (Mar. 23, 2020), available at https://www.sec.gov/news/public-statement/statement-enforcement-co-directors-market-integrity.
[2] SEC Chairman Jay Clayton, Public Statement of SEC Chairman Jay Clayton for FSOC Open Meeting (Mar. 26, 2020), available at https://www.sec.gov/news/public-statement/statement-clayton-fsoc-2020-03-26.
