In two recent settled actions, the Securities and Exchange Commission (SEC) Enforcement appears to be paying close attention to disclosures about related-person transactions, more specifically, the lack of such disclosures. This new focus has significant implications for corporations and law firms alike as it indicates an increased scrutiny into the transparency of company operations and related-person transactions.
The first action announced last week targeted Maximus, Inc. They were indicted on the charges of not revealing the hiring of two immediate family members of a newly-appointed executive. This seeming oversight by the company has cost them dearly, with Maximus being required to pay a civil penalty of $500,000. The Maximus case accentuates the SEC’s emphasis on thoroughness in reporting and the cost at which it may come if not executed properly. The full details can be found here.
The second action, taken against the popular ride-hailing company Lyft, revolved around Lyft’s omission of disclosing the role of and benefits to certain related persons. While the details of the Lyft action have not been explored in full detail in the report, the fact that the SEC has targeted a corporate giant such as Lyft signifies the seriousness of its new focus.
These actions have far-reaching repercussions for companies and the corporate legal professionals who advise them. The responsibility of ensuring comprehensive disclosure falls on the shoulders of such professionals, and it clearly seems that the SEC is not going to turn a blind eye towards any discrepancies or omissions that may occur. As this trend continues, corporations and legal firms should review their disclosure policies and procedures to ensure they meet the SEC’s stringent expectations.
The noteworthy development brought upon by these settled actions suggests that SEC Enforcement seems more inclined to examine the quality of disclosures about related-person transactions. Legally speaking, the existence or absence of such disclosures could prove to be a determining factor in future SEC investigations which in turn could rewrite the rule book on corporate disclosures along the lines of transparency and due diligence.