On May 12, 2020, speaking at the Securities Enforcement Forum West 2020, Steven Peikin, the co-Director of the Securities and Exchange Commission Enforcement Division, provided an overview of the division’s activities over the last several months as it has responded to the challenges created by the COVID-19 pandemic.  The Division is actively monitoring issuers and market participants for any sign of abuse of the situation, swiftly implementing interim trading suspensions where the possibility of such abuse is identified, and filing enforcement actions in record time where it determines such abuse has occurred.

coronavirus, microcap

To oversee its response, he Division has formed a Steering Committee focused on identifying key areas of potential market and investor risk.  Peikin highlighted four such areas:

  1. Microcap fraud. To combat the “explosion” of microcap fraudsters making specious claims of treatments and disaster-response capabilities, the Steering Committee is focused on gathering and analyzing microcap market data in order to quickly triage matters for potential trading suspensions or enforcement actions.
  2. Market manipulation. The Steering Committee is monitoring trading activity around announcements made by issuers in industries particularly impacted by COVID-19 and to identify other suspicious market movements for possible manipulation.
  3. Misleading disclosures. The Steering Committee is systematically reviewing public filings from issuers in highly-impacted industries, with a focus on identifying disclosures that appear to be significantly out of step with others in the same industry, or that may attempt to disguise previously undisclosed problems or weaknesses as coronavirus-related.
  4. Investor harm. The Steering Committee is monitoring investment companies and advisors for failures to honor redemption requests which could indicate an underlying issue, as well as the performance of complex structured products to identify improper marketing of such products to retail investors.

The Steering Committee has already generated significant results for the Division in the form of trading suspensions and enforcement actions.  Peikin noted that, since February 7, the Division has suspended trading for more than 30 securities following suspicious claims by the issuers, including claims relating to access to testing materials, developments of treatments or vaccines, and access to personal protective equipment.  Three microcap securities were also suspended because their names or ticker symbols were easily confused with those of unrelated companies whose products are actually relevant to COVID-19, such as testing, N-95 masks, and videoconferencing technology.  One of the trading suspensions, related to claims regarding access to N95 masks, ultimately – and rapidly – led to an enforcement action.  In that case, trading was suspended on March 25, and the Commission filed suit against the company and its CEO on April 28 – 61 days after the company made its first allegedly fraudulent statement.

Finally, Peikin reminded the audience that the Commission would remain “keenly focused” on matters with looming statutes of limitations that might preclude the Commission from obtaining potential remedies, such as the ability to seek penalties or disgorgement.  Market participants in those cases should expect to see actions swiftly filed in the absence of tolling agreements.