SEC 2020: Expect SEC Enforcement to Cast Wide Net on Corporate Disclosure
This is the second installment in our series of year-end analyses of the year in securities regulation and enforcement.
Based on our ongoing analysis of SEC enforcement actions in 2019, we expect the SEC’s Division of Enforcement to continue its expansive view of company disclosure issues that warrant enforcement scrutiny. In 2019, the SEC was aggressive against alleged accounting fraud by public companies and their executives, including actions alleging accounting schemes to meet earnings expectations and actions alleging sham transactions with third parties. Consistent with this focus on accounting misstatements, the SEC also brought stand-alone actions for internal control deficiencies. In addition, the Commission brought actions against outside auditors for recurrent audit failures and violation of auditor independence rules.
Expanding beyond this traditional focus, the SEC investigated companies for alleged misstatements or omissions involving non-accounting issues, such as data privacy breaches and cyber-related violations, as well as other non-technology negative developments affecting a company’s core operations. The SEC also brought actions against companies that were already sanctioned by other non-securities regulators. Finally, the SEC expanded its enforcement reach to foreign companies with securities that are primarily listed overseas, as long as the Enforcement Staff could find a US jurisdictional hook to sue such companies and their executives—a trend we have seen continue into recent weeks.