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Pandemic Creates Material Disclosure Risks

May 8, 2020

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Financial and other uncertainties caused by the COVID-19 pandemic are creating disclosure issues for companies across all industries. Barrie Brejcha, posting on the BakerMcKenzie site, cites an SEC directive that companies provide investors with assessments and plans for addressing material risks created by the coronavirus “to the fullest extent possible.” He foresees many possible COVID-related claims and government investigations. The SEC and state attorneys general will be probing inadequate disclosure of companies’ financial situations, including alleged misstatements and omissions of material negative information and risks related to COVID-19 stresses and impacts, concealment or improper valuation of impaired assets, insider trading or fair disclosure issues, and inadequate due diligence. There will likely be whistleblower claims concerning federal and state funds received from government programs. The Financial Industry Regulatory Authority will be looking into allegedly unsafe or unsound business practices. The DOJ will be actively enforcing Foreign Corrupt Practices Act proscriptions related to the increased bribery risks prompted by travel restrictions, and mandatory quarantine.

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