In the third installment of our series for Corporate Counsel on impending government scrutiny on federal relief funding and company activity during the pandemic, Bass, Berry & Sims attorneys Britt Latham and Brian Irving offered insight into the possible risk of Securities Exchange Commission (SEC) enforcement related to COVID-19 and steps they should take to avoid SEC scrutiny. They discuss how the SEC will be active in reviewing public company activity as it relates to federal relief funding, public disclosures and insider trading.
Companies receiving Paycheck Protection Program (PPP) loans must ensure eligibility and the truth of their certifications as the SEC is already reviewing company representations made during the application process. Companies taking these loans must also ensure that funds were used in a manner compliant with PPP requirements. “Because this is the largest relief package in U.S. history, there may be an unparalleled number of investigations in the months and years to come,” Britt and Brian warn.
Beyond relief funding, COVID-19 has had a dramatic impact on the operational and financial performance of many public companies, and it is important for these businesses to be vigilant about what they say to investors and the market about the impact the virus has had. The SEC suggested that boilerplate disclosures will not suffice and urged companies to make high quality disclosures regarding the impact or anticipated impact of the pandemic. The SEC is actively monitoring the markets to detect fraudsters seeking to mislead investors or initiate investment scams using the COVID-19 crisis but it also intends to pursue companies who are not transparent and thoughtful about their disclosures.
Finally, company insiders are receiving material, non-public information at a greater frequency than ever, which heightens the risk of insider trading allegations. “Companies should carefully follow – and maybe even reconsider – their normal policies and practices around open windows for trading and closed windows around earnings and other discussions of non-public information,” the authors said. “Companies should also carefully maintain and follow corporate controls to keep non-public material information confidential, including reminding employees of their confidentiality obligations.”
The articles in the series are available on the Corporate Counsel website and on the firm’s related blogs, links below:
- “How Public Companies Can Protect Against SEC Scrutiny Related to COVID-19,” (September 16, 2020) and Securities Law Exchange blog (September 16, 2020).
- “How Health Care Companies Can Protect Against Government Scrutiny of COVID-19 Relief,” (July 10, 2020) and Inside the FCA blog (July 28, 2020).
- “What Your Company Can Do Today to Protect Against Government Scrutiny of COVID-19 Relief Funding,” (June 9, 2020) and Inside the FCA blog (July 23, 2020).