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A recent Woodruff Sawyer blog highlights some of the factors that may make the SEC more likely to charge an individual executive when bringing an enforcement action against the company arising out of disclosure issues.  One of the factors identified is media attention, and this excerpt points out that the more interested the media is in a particular situation, the more likely it is that the SEC will be looking for individuals to hold accountable:

There is a strong correlation between media scrutiny and government enforcement risk. Pretend you run an unsexy widget-making business. You tell the street that you will be releasing a new widget imminently. Then things go sideways, the widget is never released, and your company’s stock price declines by 35%. While the plaintiffs’ bar may be very interested, the media doesn’t bat an eyelash. Will you be investigated and sued by the SEC? It’s possible, but if there’s no article in The Wall Street Journal, it’s equally possible that the government may never focus on your issues.

Now assume that you run a super-sexy tech company disrupting the industry with WaaS (widgets-as-a-service). When your company’s problems emerge, a story appears on the front page of the Journal, and The New York Times does a deep dive on your corporate culture three weeks later. This virtually ensures the government will come sniffing around. In high-visibility cases, the government may be especially focused on showing that they are not being soft on senior executives (if they have the evidence to back it up).

A lot of this is out of your control. Typically, enterprise-facing companies simply don’t have the same media allure as consumer-facing companies. But if as a consumer-facing company you can achieve your public relations and marketing goals without also becoming an object of media obsession, when challenges emerge, you may be happy that you are not front-page material.

Other factors pointed to by the blog as increasing the likelihood of charges against an individual include evidence that senior officials pressured others to take improper actions and the presence of cooperating witnesses in addition to documentary evidence.

Another interesting fact that the blog points out is that the percentage of SEC enforcement proceedings in which individuals are named has remained relatively constant regardless of which party is in power. From 2017 to 2023, the percentage of cases involving charges against individuals has consistently been in the range of 70%.

– John Jenkins