Honesty is the best policy in dealing with the Securities and Exchange Commission’s enforcement arm – especially if your client may have done something wrong.
That was the consensus of a panel of former SEC officials and the agency’s current regional director, David Peavler, who took part in a continuing-legal-education program Tuesday evening hosted by The Texas Lawbook.
“I encourage companies and their counsel to come in and let us know what happened,” said Peavler, who oversees the agency’s enforcement efforts in Texas, Oklahoma, Arkansas and Kansas.
If a company suspected of SEC violations takes the initial position that “there’s nothing here,” and a subsequent investigation reveals that’s not true, “we will hold it against you,” Peavler said.
“We’re not stupid, all appearances to the contrary.”
Joining him on the CLE panel were Jessica Magee, a Holland & Knight partner and former associate director of enforcement at the SEC; Rebecca Fike, a Vinson & Elkins partner and former SEC senior counsel for enforcement; and Steven Richards, a senior managing director of Ankura, a global business- consulting firm, and a former assistant chief accountant in the SEC’s enforcement division.
The session was moderated by David Woodcock, a former SEC regional director who is now an assistant general counsel for ExxonMobil.
The panelists discussed key developments and enforcement trends in rapidly evolving areas of securities regulation. These include cryptocurrency trading and special purpose acquisition companies (SPACs), also known – at least to federal regulators – as “blank-check companies,” shell corporations that gain listing on a stock exchange with the sole purpose of acquiring private companies, thus making them public without going through the traditional initial public-offering process. Other trends include environmental, social and governance (ESG) disclosures related to climate change – a newly important consideration, Richards said, now that “millennials make up the majority of the workforce and investors.”
SPACs have drawn added attention from the SEC because their use could shield improper accounting, financial misstatements and even fraud by the private companies they serve.
Nonetheless, Magee said, if properly administered, SPACs “can be a healthy option” for companies seeking to go public. Fike agreed, calling SPACs “a different avenue to the market.” And in any case, Richards said, “I don’t think SPACs are going away.”
And in any case, the panelists agreed, trying to pull a fast one on the SEC is, far more often than not, a losing bet.
“Put yourself in the best position to present your arguments,” Richards said. “Don’t mess up blocking and tackling.… Get the basic things right.” Among other things, he advised companies notified of an SEC inquiry to keep their boards of directors informed from the beginning.
Magee said companies do well to assess their annual training, so everyone understands what behaviors could constitute illegal insider trading. “When something does go wrong or may have gone wrong,” she added, “the idea of self-reporting needs to be in the conversation.”
If and when the SEC comes knocking, she said, “a company has to go in being self-aware, with an understanding of where things went wrong.”