SEC and Shareholder Response to COVID -19

From the early stages of COVID-19, the Securities and Exchange Commission (SEC) issued warnings about potential pandemic-related disclosures, fraud, and disruptions to the financial markets. To help investor confidence and mitigate the uncertainty, the SEC Coronavirus (COVID-19) Response set guidelines focused on:

      • Maintaining the continuity of Commission operations;
      • Monitoring market functions and system risks;
      • Providing prompt, targeted regulatory relief and guidance to issuers, investment advisers and other registrants impacted by COVID-19 to facilitate continuing operations, including in connection with the execution of their business continuity plans (BCPs); and
      • Maintaining our enforcement and investor protection efforts, particularly with regard to the protection of our critical market systems and our most vulnerable investors.

Most recently, on May 12, 2020 the SEC Division of Enforcement’s Coronavirus Steering Committee stated that the newly formed committee would stay “…focused on identifying key areas of potential market and investor risk,” including microcap fraud, insider trading, accounting disclosures, and market-moving disclosures related to COVID-19. The SEC response and actions are focused on monitoring trading activity made by the issuers the industries impacted by COVID-19 and to identify other suspicious market movements for possible manipulation. SEC Chairman Jay Clayton has also advised companies to “provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus to the fullest extent practicable to keep investors and markets informed of material developments.”

In the area of enforcement and investor protection efforts, the SEC has dedicated significant resources to responding to COVID-related matters. Over the past few months, the SEC has suspended trading of companies that have issues regarding the adequacy and accuracy of its information in the marketplace and has brought a number of enforcement actions against those companies for fraud based on COVID-19 related claims.  The SEC’s list of trading suspensions is updated regularly.

Shareholders have responded to the economic impact of COVID-19 by filing securities class actions.  Some examples include lawsuits against Norwegian Cruise Lines (NCL) for allegedly concealing information regarding its handling of the pandemic,  Inovio Pharmaceuticals (INO), which is accused of making false claims about its COVID-19 vaccine, and Zoom Video Communications, Inc. (ZM) following disclosures related to alleged undisclosed cybersecurity weaknesses and privacy violations, to name a few.  As the pandemic lingers, we expect to see more lawsuits alleging false and misleading statements and other improper conduct to bolster financials in the face of uncertainty.

In times like these, publicly traded companies must be careful in their public statements and investors must be vigilant in demanding transparency.  Robbins LLP is closely watching COVID-19’s impact on securities litigation and is here to answer any questions.

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