In recent months, the U.S. Securities and Exchange Commission has brought two enforcement actions against independent directors of two publicly traded companies. While the commission historically has not pursued public company directors, it does so when it deems the directors to have knowingly permitted or facilitated violations of the securities laws. This report discusses these recent cases in light of the SEC’s historical position on such offenses and offers recommendations for how board members can mitigate their risks.

The SEC enforcement actions were against four independent directors at two publicly traded companies. While these actions reflect the SEC’s interest in bringing actions against these types of directors, they are consistent with the commission’s historical practice of pursuing cases against independent directors only when it believes that they personally have engaged in violative conduct or have repeatedly ignored significant red flags (see “Historical SEC Actions against Outside Directors” below). One of the actions, which was brought as an administrative proceeding instead of as a complaint in federal court, illustrates how the commission may choose to use some of its new enforcement powers under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).

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