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On Friday, Reuters shared takeaways from an interview with David Woodcock, Director of the SEC’s Division of Enforcement. His remarks were focused on AI-enabled fraud and AI-related disclosures, private markets and prediction markets. Here are some snippets:

The US Securities and Exchange Commission is examining artificial intelligence companies’ corporate disclosures as investor worries mount over a potential AI bubble that may have been fueled by circular deals, the agency’s enforcement director told Reuters on Friday [. . .] [T]he agency does not want to stand in the way of tech innovation, but that it is the agency’s job to ensure issuers are giving investors the full picture on potential risks.

Woodcock said the SEC also has a role in overseeing prediction markets [. . .] Woodcock said the agency’s enforcement staff are working with policy officials as well as the Commodity Futures Trading Commission, which broadly oversees swap markets, to monitor and regulate the booming new markets.

David Woodcock also spoke at Practicing Law Institute’s 58th Annual Institute on Securities Regulation yesterday. Here are a few highlights from his remarks, which you can watch on YouTube.

– The number of financial reporting and accounting cases had been down before the launch of the Financial Reporting and Accounting Unit, possibly because these cases take longer to investigate (over 4 years, on average) and are very complex, highly technical and judgment laden. The new unit is staffed with a specialized team of accountants and lawyers and meant to be durable. The types of cases they’re investigating are the same as always: e.g., revenue recognition, valuation issues and areas of accounting that require significant judgment.

– He noted that the Enforcement Division is trying to avoid pushing the envelope, from a legal perspective, on the claims they are pursuing (i.e., avoiding regulation by enforcement) and focused on being transparent while welcoming the perspective of the defense and its counsel so that the Commission can see their side.

– Enforcement Staff wants to give cooperation credit. He pointed to the recent enforcement action regarding the issuance of ESPP shares in excess of the number registered on Form S-8, which involved no civil penalty. (The company promptly suspended the ESPP, conducted an investigation, self-reported to the Commission and voluntarily initiated a rescission offer.) He suggested that companies carefully consider self reporting with their counsel because once a whistleblower reports to the SEC, cooperation credit becomes fuzzy. He stressed that the Staff doesn’t talk about instances where no charges were brought, but that does happen.

– Meredith Ervine