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10 things you need to know about SEC compliance if you run a publicly traded company | CP Oberheiden

Public companies in the United States are subject to a long list of federal laws and regulations. The United States Securities and Exchange Commission (SEC) is responsible for enforcing these laws and regulations, and it regularly conducts investigations and enforcement actions targeting companies (and individuals) suspected of non-compliance.

With this in mind, SEC compliance is essential. From blue-chip multinational corporations to micro-cap companies, all publicly traded companies must make SEC compliance a priority. Those that don’t run substantial risks, and it’s only a matter of time before they come under scrutiny.

“SEC compliance presents several challenges for publicly traded companies. Not only do these companies need to develop and implement tailored compliance programs, they also need to execute those programs on an ongoing basis. Monitoring, enforcement, and remediation are also key aspects of SEC compliance, and the SEC expects publicly traded companies to take proactive steps to avoid violations and prevent harm to investors. – Dr. Nick Oberheiden, founding lawyer of Oberheiden PC

What does it take to maintain SEC compliance? The answer to this question is different for different companies. Although all publicly traded companies have the same general obligations under federal securities laws and regulations such as the Securities Act of 1933 and Regulation Fair Disclosure (Regulation FD), companies must adapt their compliance efforts to the unique aspects of their business and must ensure that their SEC compliance programs facilitate compliance within their particular organizational structure and corporate culture.

With that in mind, here are 10 important facts about SEC compliance for executives of publicly traded companies:

1. SEC compliance is an ongoing process

The first thing business executives need to understand about SEC compliance is that it is an ongoing process. While companies must adopt comprehensive codes of conduct, policies and procedures, this is only the first step on a never-ending journey. By approaching SEC compliance from this perspective, business leaders can set their mindset appropriately and make compliance the cultural (rather than transactional) priority it needs to be.

2. SEC Compliance Has Many Aspects

It is also important to understand that SEC compliance has many aspects. Although registering with the SEC and submitting Forms 10K, 10-Q, 8-K and proxy statements, where applicable, is a major aspect of compliance for publicly traded companies, compliance will well beyond the completion of all the required documents. Publicly listed companies need to address various other aspects of compliance both internally and externally. Here are some examples :

  • Corporate Finance Controls – Listed companies are subject to comprehensive and rigorous corporate finance regulations. Businesses must implement adequate internal controls, engage independent auditors, and document in detail all regulated financial transactions of the business.
  • Marketing and sales practices – When marketing and selling their securities, publicly traded companies must be very careful to avoid prohibited statements and violations of sales practices. Companies must also ensure that their third-party brokers and other representatives maintain strict compliance. This applies to all marketing and sales channels, including all social media platforms.
  • Insider trading – Federal insider trading laws and regulations are extraordinarily complex. They impose penalties (civil or criminal) on more individuals in more circumstances than most corporate executives realize. Preventing insider trading is a key part of SEC compliance, and companies that don’t implement the proper controls can face penalties with those involved.

3. An effective SEC compliance program will have several components

Due to the breadth and complexity of corporate compliance obligations, an effective SEC compliance program will have several components. All of these components must be adapted to the specific risks and needs of the company. As outlined by the SEC in conjunction with the US Department of Justice (DOJ), some of the key elements of an effective legal and regulatory compliance program include:

  • Senior Management Commitment to Compliance
  • Company internal control structure
  • Code of conduct
  • Compliance policies and procedures
  • Initial and ongoing compliance training programs
  • Internal mechanisms for reporting compliance violations
  • Internal monitoring and auditing of SEC compliance
  • Application and repair
  • Discipline for non-compliance and incentives for compliance
  • Documentation of initial and ongoing compliance efforts

4. Publicly Traded Companies Must Monitor and Enforce SEC Compliance

As noted in the list above, monitoring and enforcement are key aspects of SEC compliance. When it comes to meeting the legal and regulatory obligations of publicly traded companies, simply having a compliance program in place is not enough. Companies should evaluate the effectiveness of their SEC compliance programs on an ongoing basis, and they should promptly remedy any compliance violations without prompting from the SEC (or other authorities).

Publicly traded companies must designate a compliance officer who has primary responsibility for overseeing their SEC compliance programs. Larger companies will need to employ compliance teams, and they will usually also need to work with outside SEC compliance counsel and consultants. These teams must follow defined processes and protocols to review and assess compliance, and they must impose appropriate means of enforcement when necessary. Depending on the circumstances surrounding an SEC compliance violation, proper enforcement can range from a reprimand and additional training to immediate termination and public disclosure.

5. Maintaining Compliance Won’t Necessarily Avoid SEC Review

Maintaining compliance does not necessarily insulate publicly traded companies from SEC scrutiny. The SEC regularly reviews public company filings and responds to media coverage as well as advice received from whistleblowers and other agencies.

Therefore, when dealing with compliance, publicly traded companies should keep in mind the possibility of facing scrutiny from the SEC. Their compliance documents must include protocols for responding to requests from SEC agents, and they must have their SEC compliance counsel on standby to communicate on their behalf if necessary.

6. Maintaining Compliance and Demonstrating Compliance Are Equally Important

This brings us to another key point: maintaining compliance and being prepared to demonstrate compliance are equally important. In the face of intense scrutiny from the SEC, the onus is on the company to prove that its compliance efforts are both sufficient and effective. If a public company cannot affirmatively demonstrate compliance, this generally leads to an adverse presumption, which, in turn, may lead to a formal investigation by the SEC.

To demonstrate compliance, companies must do more than maintain documented compliance programs. They must also document their compliance efforts on an ongoing basis. This includes, among other things, documentation of (i) compliance program implementation, (ii) compliance training, (iii) compliance audits and monitoring efforts, (iv) resolution of compliance violations; and (v) other proactive measures taken to assess business performance. obligations and maintain compliance.

7. Companies and their leaders can face consequences for non-compliance

SEC compliance violations can have consequences for companies and their executives. In administrative enforcement proceedings, the SEC may impose penalties, including civil monetary penalties, restitutions, cease-and-desist orders, suspensions and revocations, and bans on association with the securities. It is not uncommon for the financial penalties in these cases to reach tens of millions of dollars (if not more). In civil and criminal cases prosecuted by the DOJ, companies and individuals can face substantial fines, and individuals can face federal imprisonment if charged with criminal securities law violations. movables.

8. SEC compliance requires a personalized and systematic approach

SEC compliance is not a one-size-fits-all proposition. This requires a tailored approach, and business leaders should work with their outside consultants and counsel to develop codes of conduct, policies, and procedures that will prove effective given the unique characteristics and risks of their business.

It also requires a systematic approach. From training programs conducted during employee onboarding to regular SEC compliance audits, companies must implement systems designed specifically to meet (and document that they have met) their legal and regulatory obligations.

9. Certain Transactions and Events May Trigger Additional Compliance Obligations

Another important fact to keep in mind regarding SEC compliance is that certain transactions and events may trigger additional compliance obligations. For example, publicly traded companies will need to seek SEC approval for certain mergers and acquisitions, and they will need to respond proactively to hostile takeover bids and other events that have potential implications for shareholders. . Understanding when these types of obligations arise is critical for executives of publicly traded companies.

10. The SEC expects compliance as a baseline

Finally, executives of publicly traded companies must understand that maintaining an effective SEC compliance program is not “going beyond” the call of duty. It’s more of a baseline. While maintaining SEC compliance may not be high on an executive’s priority list from a business perspective, it is critical to protecting company assets and investors. The SEC expects all publicly traded companies to maintain effective compliance programs, and it penalizes those that do not.

If you run a publicly traded company, SEC compliance will be part of your daily life. By accepting this obligation rather than brushing it off, you can maximize your company’s shareholder value while protecting yourself, your colleagues and your company from exposure to substantial risk.