Category: Corporate Disclosures
To nobody’s great surprise, on June 5, the SEC approved the “Reg BI Package,” which includes a series of new standards governing the fiduciary responsibilities of broker-dealers and investment advisers. The approved items consisted of the Regulation Best Interest – Standard of Conduct for Broker-Dealers; Form CRS Relationship Summary; Standard of Conduct for Investment Advisers; and Interpretation of “Solely Incidental,” all of which seem likely to have considerable impact on the industry going forward.
On January 29, the SEC announced settled charges with four public companies for failing to maintain adequate internal control over financial reporting (ICFR). According to the respective orders, each of these companies repeatedly disclosed material weaknesses involving “certain high-risk areas of their financial statement presentation” over numerous annual reporting periods. Yet, despite these public acknowledgments, the SEC alleged that these companies took “months, or years, to remediate their material weaknesses,” even after being contacted by the SEC. In addition to cease-and-desist orders, the SEC levied monetary penalties against each company ranging from $35,000 to $200,000.
In announcing these settlements, the SEC emphasized that these proceedings were predicated on the registrants’ unreasonable delays in remediating the disclosed internal control deficiencies, rather than the disclosures themselves. Melissa Hodgman, an Associate Director in the SEC’s Enforcement Division, stated in the press release accompanying … Read More »
Deputy Attorney General Rod Rosenstein recently announced significant changes to the Department of Justice’s corporate enforcement policy regarding individual accountability, previously announced in the 2015 Yates Memo. The revised policy no longer requires companies who are the target of DOJ investigations to identify all parties involved in potential misconduct before they can be eligible to receive any cooperation credit. This alert examines the updated policy, which should provide companies with greater flexibility in conducting investigations and negotiating dispositions with DOJ in both criminal and civil cases.
Read the full alert.
A June 15, 2017 settlement with two former executives of a publicly-traded, multinational freight forwarding and logistics company provides the most recent example of two emerging SEC enforcement initiatives in financial reporting and accounting-based actions that we spotlighted recently – a non-reliance on financial statement materiality and an absence of fraud-based allegations. Exchange Act Rel. No. 80947 (Jun. 15, 2017). According to the SEC, Eric W. Kirchner and Richard G. Rodick, the former chief executive officer and chief financial officer of UTi Worldwide, Inc. (“UTi”), purportedly were responsible for inadequate Management’s Discussion & Analysis (“MD&A”) disclosures in a Form 10-Q that UTi issued during fiscal year 2013. Without admitting or denying the findings, both agreed to settle purported violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-13, and 13a-14, thereunder, and to pay a $40,000 civil penalty.
According … Read More »
Recent Charges Against China-Based Companies Demonstrate SEC’s Efforts to Bring More Financial Fraud Cases
SEC Chair Mary Jo White and Enforcement Director Andrew Ceresney have repeatedly said that financial fraud would be a priority of the SEC’s enforcement program. Two recent cases involving companies with China-based operations may signal a new trend in this area.
On March 11, 2014, the SEC charged animal feed company AgFeed Industries Inc. in a massive accounting fraud scheme. According to the SEC, four company officials–executive chairman Songyan Li, CEO Junhong Xiong, CFO Selina Jin, and controller Shaobo Ouyang–engaged in several tactics to artificially inflate revenue, including creating fake invoices for sales that did not occur and misrepresenting the weight of hogs which resulted in falsely amplified revenues. The SEC alleged that to perpetuate the scheme, the executives kept two sets of company books–an “outside” set that the company provided to its auditors and an “inside” real set that contained … Read More »
On April 14, 2014, the U.S. Court of Appeals for the District of Columbia Circuit issued its opinion in the conflicts minerals case, National Association of Manufacturers, et al., v. Securities and Exchange Commission. The Court of Appeals upheld most aspects of the statute and the rule, but found that the statute and rule violate the First Amendment “to the extent that the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have not been found to be ‘DRC conflict free.’” The Court of Appeals remanded the case to the U.S. District Court for the District of Columbia for further proceedings consistent with its opinion. As of this time, there is no reprieve for issuers from the requirement to file a Form SD or conflict minerals report with the … Read More »