Tag Archives: John W.R. Murray

SEC Targets Issuers and Officers for Disclosure Violations Through Data Analytics

by John D. Hancock, John W. R. Murray, and Nicholas Anastasi

Just before the close of its fiscal year, the Securities and Exchange Commission (SEC) brought three noteworthy financial reporting cases against issuers that resulted from the agency’s increasingly sophisticated use of risk-based data analytics to detect disclosure violations.  On September 28, 2020, the SEC filed settled actions against two issuers, as well as two officers of one of them, for falsifying their reported earnings per share (EPS).  These actions, against Interface Inc., an Atlanta-based carpet manufacturing company, and its former chief financial and chief accounting officers, and Fulton Financial Corporation, a Pennsylvania-based financial services company, are the first to stem from the SEC Division of Enforcement’s EPS Initiative, which harnesses data analytics to uncover misleading earnings management and related misconduct. 

In the third action, filed on September 30, the SEC found that Hilton Worldwide Holdings failed to disclose travel-related executive perks, and noted that the action was generated by Enforcement’s “use of risk-based data analytics to uncover potential violations related to corporate perquisites.”  Interface, Fulton and Hilton agreed to pay penalties of $5.0 million, $1.5 million, and $0.6 million, respectively. 

Over the past decade, the SEC has developed a formidable set of technological tools and expertise that have enabled it to analyze massive amounts of data quickly and efficiently in order to identify misconduct.  These three recent actions, and the relatively large penalties imposed, signal that it will continue to prioritize financial reporting cases against issuers, both large and small, as well as their officers, utilizing these expanded capabilities.  Given that some of the underlying conduct occurred as far back as 2015, these cases also demonstrate that issuers should not derive any comfort from the passage of time.

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What to Expect from SEC Enforcement’s Coronavirus Steering Committee

by John W. R. Murray and Rachel Hutchinson

Following up on previous guidance, Steven Peikin, Co-Director of the SEC Division of Enforcement (“Enforcement”), provided updated detail on Enforcement’s response to the COVID-19 pandemic in a virtual keynote address last month at the Securities Enforcement Forum West 2020.  (We discussed Enforcement’s prior statements here and here.In his remarks, Peikin affirmed that Enforcement will continue to prioritize COVID-19-related fraud – in particular, microcap fraud, insider trading and market manipulation, and false or misleading issuer disclosures.  Peikin also reported that investment advisers, investment companies, and broker-dealers are within Enforcement’s sights in connection with redemption and sales and marketing practices related to the pandemic.  Moreover, while acknowledging that the crisis “has had – and will continue to have – a substantial impact” on Enforcement’s operations, the Co-Director made clear that the Division intends to press ahead across all of its priority areas, whether COVID-19-related or not.

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