In our recent webinars “What Lessons Can We Learn from the Last Financial Crisis?” and “Disclosure in the Time of COVID-19,” we anticipated that the SEC Division of Enforcement would leverage its experience from the 2008 Financial Crisis in ramping up efforts to investigate potential COVID-19 related misconduct by public companies, asset managers and financial intermediaries. 

On 12 May 2020, Steven Peikin, Co-Director of the SEC’s Division of Enforcement, gave a speech in which he stated that he and Co-Director of Enforcement Stephanie Avakian have indeed created a Coronavirus Steering Committee to coordinate the Division of Enforcement’s response to coronavirus-related enforcement issues.  In doing so, the Co-Directors drew lessons from prior crises on both the types of potential misconduct and the need for a coordinated enforcement response.  The Steering Committee is comprised of approximately two dozen leaders from across the Division and the SEC’s offices, including representatives from various Enforcement specialized units, and from the SEC’s Office of Market Intelligence.

The Steering Committee will proactively identify and monitor areas of potential misconduct exposed by or stemming from this crisis; and we can expect, as a result, the Enforcement Staff to be on the lookout for the following types of potential COVID-19 related misconduct:

  • Corporate disclosure and accounting fraud, such as preexisting accounting and disclosure improprieties exposed by the current down market, or misstatements regarding the impact from the current crisis;
  • Asset managers and financial intermediaries misconduct, such as preexisting undisclosed issues exposed by recent failure to honor redemptions by private funds or registered investment companies, or improper marketing and sale of complex structured products exposed by the current crisis;
  • Insider trading and market manipulation in the midst of a volatile market; and
  • Microcap fraud involving specious claims of COVID-19 treatments and the like.

The Steering Committee will oversee proactive analysis of data to identify investigative leads to be followed by the Enforcement Staff. 

In light of this intensified enforcement scrutiny, public companies, asset managers and financial institutions should consider steps to mitigate enforcement risks, including the steps we have highlighted in our regular webinars

Author

Amy J. Greer serves as the Co-chair of Baker McKenzie’s North American Financial Regulation and Enforcement Practice, which provides our clients with a full range of regulatory advice and enforcement counseling. Previously, Amy has served as chief litigation counsel at the US Securities and Exchange Commission's (SEC) Philadelphia regional office and managed a team of lawyers overseeing a wide variety of enforcement matters and investigations.

Author

Peter K.M. Chan is a member of Baker McKenzie’s North American Financial Regulation and Enforcement Practice, which provides our clients with a full range of regulatory advice and enforcement counseling. Peter brings two decades of experience at the US Securities and Exchange Commission (SEC) to his litigation and counseling work. His tenure at the SEC, as well as a stint as Special Assistant US Attorney in the Northern District of Illinois, have given Peter experience with civil and criminal matters.