Marc Berger, director of the SEC's New York regional office, said the commission is proactively monitoring the TCRs as it "sends a message" that fraud will be thwarted through a number of recent initiatives and actions.
"Since mid-March or so the commission has seen a spike in TCRs … as compared to the same period last year. We've opened new investigations, many of which are COVID-related," Berger said, speaking on a webcast hosted by the Securities Industry and Financial Markets Association.
Berger pointed to the SEC's smooth transition to teleworking and the enforcement division's so-called Coronavirus Steering Committee, announced officially this month by the division's co-director, Steven Peikin, as keys to snuffing out pandemic-related fraud.
Since early February, the SEC has issued more than 30 trading suspensions based on questionable coronavirus-related claims, Berger noted, also pointing to more "substantive COVID-related fraud actions."
Among those, this month the SEC charged two companies for alleged anti-fraud violations stemming from COVID-19-related claims — one tied to inflated claims regarding the availability of a finger-prick test for the virus — after previously suspending their stocks.
"We're keeping an eye on this area because there is a window for people to potentially try to profit from these fraudulent representations," Berger said. "We also hope that by acting this fast it'll send a message to others in the marketplace."
The comments came amid a discussion that also included a group of in-house regulatory professionals and outside counsel who spoke of the impacts of the virus and offered advice to firms facing investigations from the SEC or other regulators, including their thoughts on properly scoping investigations and how to efficiently interact with the regulators.
In stressing that the SEC is focused on prioritizing COVID-19 cases, Berger noted that so-called tolling agreements, which can be used to waive statutes of limitations, aren't of great importance. If the evidence is sufficient to bring an enforcement action, his office may recommend that the commission bring actions immediately, even as it continues to build the case, he added.
"If we brought these COVID cases that I mentioned earlier two years from now instead of two weeks ago … much different effect," Berger said. "We're going to do everything we can to preserve the commission's claims and remedies, particularly during the time that we're in right now."
Victoria Earls, chief counsel of investigations and enforcement at trading firm Interactive Brokers, noted that a perfect storm of the pandemic, the resulting market volatility and work-from-home orders has "added a layer of complexity for broker-dealers" in particular.
Earls advised that, in scoping an investigation, firms should first figure out how the regulators came to learn about the issues and ask themselves, "Do I truly understand what happened, am I confident in the facts, do I have all the insight I need?"
"You need to generate for yourself a good degree of confidence that you're familiar with the relevant facts and the legal issues at play," she said. "Assuming you have a handle on both of those … I think the most effective way to keep an investigation focused is to communicate openly and as often as possible with the investigator if they're willing to."
Fraser Hunter Jr., a partner in WilmerHale's securities department, cautioned that scoping can be "tricky," particularly when dealing with multiple regulators at the state and federal levels.
He also warned that bringing new information to regulators after the fact "is an area where there's a risk of an own goal," or at least it could "chip away" at your credibility with regulators.
On that note, Berger advised firms to furnish any new information as quickly as possible, urging them not to always stick to an initial scoping plan, especially when new information surfaces.
"It's one thing for something to be scoped, but also show some adaptability and versatility," he said. "The things that we look toward in a party that is being cooperative is whether they are changing their search terms in light of what they've recently learned in the course of their internal investigation."
--Editing by Jack Karp.
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