The ongoing pandemic is slowing down investigations into most types of white-collar crimes as federal enforcement agencies refocus their attention on coronavirus-related matters.
Federal regulatory enforcement agencies like the Department of Justice and Securities and Exchange Commission announced in March they will prioritize investigations into crimes like consumer-related fraud involving false coronavirus cures and other claims; fraudulent billing for coronavirus tests or related healthcare procedures; and solicitations for illegitimate or non-existent charitable organizations, among others.
The slowdown is partially driven by pragmatism. Federal agencies are hamstrung by the same shutdown orders affecting most U.S. businesses and government agencies. Investigators are working remotely, and many courts are closed for all but emergency business. As a result, the ability of agents to obtain subpoenas, enact search warrants, and convene grand juries is curtailed.
“We should proceed with great caution in considering whether to take regulatory action outside of that called for by the current dire and pressing public health crisis and its ramifications for the public, investors, markets, and the economy,” wrote SEC Commissioner Allison Herren Lee in an April 3 statement. “A careful balancing of interests, including the burdens we all face in coping with the economic and social challenges of protecting ourselves, our families, and our nation, suggests that regulatory action in the near term not related to the exigencies created by COVID-19 would rarely be warranted.”
The temporary slowdown of white-collar crime investigations does not mean companies should use the coronavirus pandemic as an excuse not to cooperate with existing investigations, nor is it a directive to be less vigilant in rooting out potential illegal behavior within your organization, says Brett Jaffe, a partner with Alston & Bird.
“Everyone on all sides should be diligently working out timelines that make sense,” he says.
“A careful balancing of interests, including the burdens we all face in coping with the economic and social challenges of protecting ourselves, our families, and our nation, suggests that regulatory action in the near term not related to the exigencies created by COVID-19 would rarely be warranted.”
Allison Herren Lee, Commissioner, SEC
That being said, publicly traded companies should be particularly vigilant in two areas of corporate governance during this time of uncertainty, Jaffe says. The first is insider trading.
“I’ve been talking to my clients a lot lately about good corporate governance protocols,” Jaffe said. In this environment, a company’s fortunes can take dramatic swings based on a particular report or event. Instances of insider trading are likely to become more prevalent.
Compliance professionals should also be monitoring corporate disclosures to ensure they comply with federal securities laws—particularly false or misleading statements intended to prop up the value of the stock. These times might dictate disclosing more information, rather than less.
“It’s probably wise to disclose more so it doesn’t appear you’re hiding information from the market,” he said.
The coronavirus pandemic could also have a dramatic effect on future regulatory activity through the recently enacted Coronavirus Aid Relief and Economic Security Act (the “CARES Act”), which contains new structures to oversee the $500 billion in funds set aside to help American businesses.
“The CARES Act provides for a Pandemic Response Accountability Committee with subpoena power staffed by Inspectors General of other agencies, a Congressional Oversight Commission, and a Special Inspector General for Pandemic Recovery. This three-body structure is modeled after provisions within the Troubled Asset Relief Program (‘TARP’) enacted after the 2008 financial crisis and, based on that precedent, could have a significant impact on future enforcement of financial crimes,” according to a recent blog post by the firm Paul, Weiss, Rifkind, Wharton & Garrison.
The blog continues: “The Special Inspector General for Pandemic Recovery (‘SIGPR’) appears to be modeled after the Special Inspector General for the Troubled Asset Relief Program (‘SIGTARP’), which conducted investigations into the bailouts of banks and investment firms for many years.”
“While it remains likely that SIGPR will, at least initially, focus its investigative resources on fraud related to the procurement of relief funds made available under the CARES Act, the precedent provided by SIGTARP—coupled with the enormous sums being made available to recipients through the CARES Act— suggests that over time SIGPR may pursue a much broader range of investigations focused on recipients of relief funds,” the Paul Weiss blog said.
President Donald Trump has, however, indicated that he may not enforce the oversight provisions of the CARES Act.
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