In a recent panel discussion sponsored by PricewaterhouseCoopers, new SEC Chief Litigation Counsel Matthew Solomon, a former criminal prosecutor in the District of Columbia, acknowledged that the SEC’s Division of Enforcement (Enforcement) is working more closely with the SEC’s Division of Corporate Finance (CorpFin) than has been the case in the past.
CorpFin seeks to ensure that investors are provided with material information to make informed investment decisions and provides interpretive assistance to companies with respect to SEC rules and forms. Historically, it has been viewed as willing to work cooperatively with companies to assure full disclosure. Indeed, CorpFin and Enforcement were generally viewed as “siloed” with little flow between the two in the absence of a formal referral; resolving an issue with CorpFin through the comment letter process was generally the end of the matter. This may no longer be the case. CorpFin now may be gathering information that may be used to further the SEC’s enforcement efforts against public companies and their officers and directors.
Our work with clients has revealed a similar close relationship between Enforcement and the SEC’s Office of Compliance Inspections and Examinations (OCIE). OCIE examines the nation's registered entities, including broker-dealers, transfer agents, investment advisers, investment companies, the national securities exchanges, clearing agencies, SROs such as the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board, and the Public Company Accounting Oversight Board (PCAOB). Again, historically, it has worked with companies to correct mistakes and misinterpretations to protect investors.
For companies and regulated entities, this means that even more care is necessary in all dealings with CorpFin, OCIE and other SEC entities. These may not be routine requests, as they may historically have been viewed, but a prelude to an Enforcement investigation, especially in view of the creation of a new Enforcement task force dedicated to finding and investigating possible financial fraud. Indeed, when more detailed or unusual requests come from CorpFin or OCIE, it may be time to consult with experienced SEC enforcement defense counsel, in addition to normal disclosure counsel. Registrants must take extra care to ensure that all statements to CorpFin and OCIE are adequately supported and will bear the skeptical scrutiny of Enforcement.