As noted in our earlier alert concerning securities enforcement actions, as COVID-19 spread swiftly across the United States in the early months of 2020, the Securities and Exchange Commission (SEC) began issuing warnings about potential pandemic-related disclosures, fraud and disruptions to the financial markets. [1] On January 30, 2020, SEC Chairman Jay Clayton announced that the SEC staff would monitor and, to the extent necessary, provide guidance regarding disclosures “related to the potential effects of the coronavirus.” [2] Shortly thereafter, the SEC began assembling a cross-divisional working group to monitor “the real and potential effects of COVID-19 on public companies, including with respect to potential reporting challenges” and public disclosures. [3]

In addition to providing disclosure-related guidance, throughout the crisis the SEC also has “actively monitor[ed]” “markets for frauds, illicit schemes and other misconduct affecting investors relating to COVID-19.” Most recently, on May 12, 2020, SEC Co-Director of Enforcement Steven Peikin outlined the responsibilities of the Enforcement Division’s Coronavirus Steering Committee, which was created to respond to COVID-19-related enforcement issues, including microcap fraud, insider trading, accounting or other disclosure improprieties, and market-moving announcements by issuers in industries particularly impacted by the COVID-19 pandemic. [4] According to recent SEC public announcements, the Coronavirus Steering Committee 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.” [5] In addition to identifying “highly impacted” industries, the SEC has also noted that “microcap stocks may be particularly vulnerable to fraudulent investment schemes, including coronavirus-related scams.” [6]

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