TheCorporateCounsel.net

This Ashurst Perkins Coie memo shares key takeaways from discussions with SEC Staff in the Division of Enforcement early this month at Securities Enforcement Forum Central and the 46th Annual Ray Garrett Jr. Corporate & Securities Law Institute. Here’s my high level summary:

– The Division is “being very thoughtful” and “thinking long and hard” about pursuing cases and whether to charge companies, with a focus on “bread and butter” securities fraud and a “quality over quantity” approach.

– As expected, the Division seeks to pursue individual bad actors “with particular attention to gatekeepers.”

– The focus on bread and butter securities fraud doesn’t mean that the Division isn’t pursuing enforcement of regulatory violations, which can be “deliberate and intentional.”

– The Staff is “receptive” to self reporting, and “where a company has identified an issue, self-remediated, and caused no investor harm, staff may decline to pursue enforcement on a case-by-case basis.” However, companies should expect enforcement to be pursued in the event of repeat violations or where it was aware of a violation harming investors.

– The Division’s new Financial Reporting and Accounting Unit can be distinguished from the Division’s former Task Force because the unit has its own “staff, management structure, and resources.” The Unit is expected to pursue “public company accounting fraud, non-GAAP disclosure cases, and auditor/gatekeeper matters,” with a focus on life sciences companies.

– Pursuing insider trading cases is a priority of the Division, and prediction markets got a lot of attention during the discussions.

– AI-related fraud is another Division priority. Agentic AI systems were highlighted as a key risk. And “subpoenas may increasingly request information about a company or individual’s use of AI, including prompts and chatbot logs, raising novel privilege and preservation questions.”

– Investigative practice has shifted. “The SEC is increasingly using voluntary document requests, in part because formal orders of investigation are harder to obtain under the current administration. Panelists advised pushing for subpoenas where possible because subpoenas typically trigger directors and officers (D&O) insurance coverage obligations.”

– Meredith Ervine