The COVID-19 pandemic continues to disrupt business dramatically throughout the world, causing some companies to suspend operations entirely. Businesses able to remain open, in many cases, must accommodate remote-working environments to fight the rapid transmission of the disease, or extend remote-working directives for longer than initially hoped. Capital markets throughout the world continue to feel the sting of disruption. In that connection, the Securities and Exchange Commission (the “SEC” or the “Commission”) has issued an update to its response to the pandemic, focusing on the following priorities:
As of early March, the SEC moved almost entirely to remote daily operations, and it is preparing for the likelihood of remote Commission meetings. The Commission is stressing in its communications that all material functions of the SEC will continue as regularly as possible even while its Staff tracks risks and mitigates harms in the midst of the pandemic (including, for instance, by actively monitoring markets for frauds, illicit schemes and other misconduct affecting investors in connection with COVID-19). Indeed, the SEC wrote, “[t]hrough this period of nationwide challenge, we have remained fully operational and committed to our tripartite mission to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” The SEC remains committed, even now, to advancing rulemaking initiatives, conducting inspections, bringing enforcement actions (as needed), and reviewing and commenting on issuer and fund filings.
The SEC aims to address the adverse effects of COVID-19 through a cross-divisional working group, with which the SEC will implement monitoring initiatives and conduct expanded outreach with issuers, exchanges, and other market participants. For instance, the following monitoring initiatives represent efforts developed in order to mitigate COVID-19’s harmful market effects:
With respect to any nefarious activity in connection with the foregoing, the SEC expressed that now, as always, it will issue trading suspensions and exercise its wide range of enforcement tools, as needed, to ensure the successful pursuit of its key functions. With the COVID-19 pandemic, as with so many periods of uncertainty in the past, bad actors know that the odds of success in attempts to defraud people increase; but, the SEC knows this, too, and it issued an investor alert recently to warn people accordingly, reminding them that “[f]raudsters often use the latest news developments to lure investors into scams” and to “[b]e cautious of claims that a company’s products or services can help stop the coronavirus, especially claims that involve microcap stocks [which] may be made as part of fraudulent ‘pump-and-dump’ schemes.” As previously indicated, the SEC continues to work closely with other branches, divisions and departments of the U.S. government, and the Department of Justice – in a first enforcement action against COVID-19 fraud announced just in the past week – reminded the general public that, before making an investment, they should visit the SEC’s website to inform themselves better of potential fraud, research the SEC filings made by companies and take other self-protective measures.
The SEC stated it will continue to provide specific regulatory assistance and guidance to affected entities, consistent with its actions since the beginning of the outbreak. Its efforts include such actions as: (i) notifying issuers that their responses to COVID-19 may constitute material disclosures that investors will consider in their “mix” of information, when making investment decisions; (ii) reminding issuers to work with their audit committees to ensure that financial reporting accounts for the new circumstances; (iii) granting relief for issuers that now intend to hold (or must hold) virtual annual meetings; and (iv) conditionally extending the deadline for certain disclosure reports for companies (and click here for an update to that conditional relief).
Efforts with regard to BCPs have ramped up as well, with the Commission requesting copies of the BCPs of many regulated entities and details concerning implementation. Unsurprisingly, the focus is on reviewing compliance efforts relating to ensuring operational continuity during a pandemic. The Commission has also circulated questionnaires, requesting specific information concerning how effective the implementation of the BCP has been and the ways and extent to which operations have been disrupted.
Now and in the future, regulated entities should make sure that their BCPs are up-to-date, including the following priorities:
The SEC continues its enforcement and investor-education efforts, with increasing focus on fraud and misconduct relating to COVID-19. It has already issued at least two trading suspensions in connection with COVID-19 related activities (against Aethlon Medical, Inc. and Eastgate Biotech).
Going forward, corporate response to COVID-19 will constitute a material factor in SEC enforcement actions. The details, implementation and effectiveness of BCPs (or lack thereof) in particular will comprise an essential consideration for companies subject to regulation by the SEC, so companies should strive to develop, implement, test, and improve BCPs, as well as undertake more extensive due diligence when contracting with third parties to reduce the likelihood of a crisis materially hampering operations.
Foley boasts a multi-disciplinary and multi-jurisdictional team that continues to amass and refine a wealth of topical client resources and stands ready to help our clients meet the legal and business challenges that the COVID-19 pandemic continues to impose on stakeholders across a diverse range of industries. Click here for Foley’s Coronavirus Resource Center to stay apprised of relevant developments, insights, and resources to support your business during this challenging time. To receive this content directly in your inbox, click here and submit the form.