Home » Compliance Blog » Compliance » SEC Charges In-House General Counsel with Failed Disclosure

SEC Charges In-House General Counsel with Failed Disclosure

SEC Charges

The SEC has charged the general counsel/chief compliance officer of a public company with failing to disclose material losses relating to a DoJ investigation.  The SEC accuses the lawyer, who had responsibility for responding to the government investigation, with failing to disclose material facts to the company’s CEO, CFO, audit committee and independent auditors.  The SEC maintains that proper disclosure should have resulted in disclosure of a loss contingency or recording of an accrual on the company’s financial statements.  The SEC asserts that the GC/CCO held back material facts about the investigation because he held $1.8 Million in the company’s stock, knew that public disclosure would hurt the firm’s business and reputation, and felt pressure not to disclose extraordinary charges on financial statements.

OUR TAKE: Even lawyers do not have immunity from the SEC’s policy of holding senior executives accountable for corporate wrongdoing.  It is unclear how the SEC will calculate the defendant’s ill-gotten gains, but the fact that the SEC specifically cited the defendant’s stock ownership may serve as the basis of a disgorgement order.

https://www.sec.gov/litigation/complaints/2016/comp23639.pdf