How to Avoid Ending Up in the Crosshairs of the SEC in the Wake of COVID-19

June 17, 2020Alerts

The Securities and Exchange Commission has signaled that it expects to see an uptick in fraudulent accounting activities in the wake of the financial downturn caused by the COVID-19 pandemic. In a similar vein, the Financial Industry Regulatory Authority, Inc. (FINRA) reports that it has seen a spike in alerts related to micromanipulation of markets during the pandemic.

Public companies should heed this warning by reinforcing best practices and ensuring that managers and leadership are cognizant of the pressures their employees face.

Focus on Upcoming Financial Disclosures

In public statements, the SEC has emphasized its focus on preserving market integrity and the importance of the upcoming financial disclosures in the wake of COVID-19. Companies are asked to provide as much information as is practicable in their earnings releases and analyst calls about their current status and plans for addressing the effects of COVID-19.

The SEC has also stressed that robust, forward-looking disclosures will benefit investors, and that its commitment to investor protection and market integrity is “unwavering.” Ominously, the SEC has stated that it is “laser-focused on identifying bad actors.”

As companies prepare to release quarterly earnings, employees may feel pressure to deliver. Management, directors and chief financial officers need to recognize this and take the appropriate steps to ensure that all staff understand the paramount importance of accuracy of disclosures.

Steps to Take Now

Businesses should pay close attention over the next 12 months to ensure that they are not violating any laws and maintaining integrity within their company. Some helpful tips that companies should implement immediately include:

  • Remind employees that disclosures must match the facts known by management.
  • Evaluate whether the company must disclose information about the effects of COVID-19 on their business.
  • Ensure that material information, which includes any information that would be important in making an investment decision, is not omitted.
  • Remind employees that they are strongly encouraged to promptly report any actions that they believe are inappropriate.
  • Review the company’s code of conduct and remind employees that they must adhere to the expectations outlined in the code of conduct.
  • Ensure that all employees are aware of the procedures available for reporting and addressing any potential ethical concerns.
  • Confirm that the company’s disclosure policies embrace compliance obligations and emphasize transparency and fairness.
  • Implement antifraud training for all employees.
  • Conduct internal audits.

If you suspect that your company or any employee has engaged in fraud or any unethical activities contact an attorney immediately. Do not wait for authorities to contact you to seek legal advice. Companies must be proactive during this vital time.

Fox Rothschild attorneys are experienced in advising businesses in regulatory and criminal investigations. If you have any questions about this alert or price gouging laws, please contact Marissa Koblitz Kingman at 973.548.3316 or mkingman[email protected] or any member of Fox Rothschild's national White-Collar Criminal Defense & Regulatory Compliance practice group.