In a May 12, 2020 Keynote Address at the Securities Enforcement Forum West 2020, U.S. Securities and Exchange Commission (SEC) Co-Director of Enforcement Steven Peikin discussed the SEC’s COVID-19-related enforcement priorities and ongoing efforts to detect and combat potential misconduct in this highly volatile market environment. Most notably, Peikin highlighted the formation of a Coronavirus Steering Committee “focused on identifying key areas of potential market and investor risk” and coordinating the Enforcement Division’s response. In particular, echoing other recent SEC guidance, Peikin cautioned against insider trading, market manipulation, and disclosure-related violations as COVID-19 continues to disrupt markets worldwide.
Insider Trading Considerations
Noting that the COVID-19 crisis has “resulted in dynamic and volatile markets not seen in decades,” Peikin highlighted the risk that “[t]hese market conditions, along with a regular stream of potentially market-moving announcements by issuers, provide increased opportunities for insider trading and market manipulation.” To combat that heightened risk, Peikin explained that the Coronavirus Steering Committee is working with the Enforcement Division’s Market Abuse Unit to “monitor trading activity around announcements made by issuers in industries particularly impacted by COVID-19 and to identify other suspicious market movements for possible manipulation.”
These statements follow Peikin’s observation in a March 23, 2020 Public Statement Regarding Market Integrity that, “given these unique circumstances . . . a greater number of people may have access to material nonpublic information than in less challenging times. Those with such access—including, for example, directors, officers, employees, and 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.”
In light of these recent statements, and as detailed in Goodwin’s March 26, 2020 and April 14, 2020 Client Alerts, public companies should be mindful of their established disclosure controls and procedures and restrictions on insider trading to protect against the improper dissemination and use of material non-public information. To ensure compliance, companies should diligently monitor who is aware of undisclosed material non-public information and carefully evaluate whether to close trading windows for directors, officers, and any other insiders until the material non-public information has been disclosed to the market. We recommend that companies pay particular, and ongoing, attention to this issue – and analyze more frequently than usual whether trading windows should be closed – in light of current market uncertainties and the SEC Enforcement Division’s stated focus on monitoring trading activity and market movements.
Disclosure-Related Considerations – Being “Out of Step” with Others
In his Keynote Address, Peikin also emphasized the Steering Committee’s focus on potential disclosure-related violations in the wake of COVID-19.
The Committee, Peikin explained, “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” or disclosures that “may attempt to disguise previously undisclosed problems or weaknesses as coronavirus-related.” Thus, while public companies should carefully review – and update, where necessary – their disclosures to ensure that they reflect the risks, uncertainties, and impacts related to COVID-19, companies should also be careful not to use COVID-19 circumstances in a way that could mislead investors concerning preexisting weaknesses or risks not caused by the pandemic. Ultimately, Peikin’s comments underscore the importance of making precise, accurate, and timely disclosures, including as to issues that may not be attributable to COVID-19.
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Please visit Goodwin’s Coronavirus Knowledge Center, where firm lawyers from across the globe are issuing new guidance and insights to help clients fully understand and assess the ramifications of COVID-19 and navigate the potential effects of the outbreak on their businesses.
 See Statement from Jay Clayton and William Hinman, The Importance of Disclosure – For Investors, Markets, and Our Fight Against COVID-19 (Apr. 8, 2020); Statement from Stephanie Avakian and Steven Peikin, Co-Directors of the SEC’s Division of Enforcement, Regarding Market Integrity (Mar. 23, 2020); Release 2020-53, SEC Provides Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (Mar. 4, 2020).