SEC Brings Enforcement Action Over Company’s Alleged Failure To Track Information About Workplace Misconduct Relevant To Risk Factor Disclosures About Employee Retention
On February 3, 2023, the Securities and Exchange Commission (“SEC”) announced a settled enforcement action against video game maker Activision Blizzard Inc. (the “Company”) for an alleged failure to maintain procedures designed to collect employee complaints of workplace misconduct and analyze them for disclosure purposes. The SEC found that the lack of such procedures violated the Company’s obligation to maintain procedures designed to ensure that information required to be disclosed in the Company’s SEC reports was in fact timely reported. In addition, the SEC’s enforcement action alleged that the Company had improperly impeded former employees from communicating directly with the SEC staff about possible securities law violations by requiring those employees, through a clause in their separation agreements, to notify the Company of any requests from an administrative agency in connection with a report or complaint. Without admitting or denying the findings, the Company agreed to pay a $35 million civil penalty, but Commissioner Hester Peirce issued a spirited dissent arguing that the SEC’s allegations did not in fact amount to securities law violations.
Company Acquired By SPAC Agrees To Pay $125 Million To Settle SEC Probe Months After CEO Was Charged With Fraud
On December 21, 2021, the Securities and Exchange Commission (SEC) announced that Nikola Corporation—a publicly traded company that develops, manufactures, and sells electric trucks—had agreed to a $125 million settlement agreement to end the SEC’s investigation into claims that the company, both directly and through its former CEO, Trevor Milton, had deceived investors about the company’s ability to build hydrogen-powered vehicles and other issues. As part of the settlement, Nikola neither admitted nor denied the claims against it, and agreed to continue cooperating with the SEC in its separate investigation into Milton himself. The SEC previously brought a suit against Milton, who was also charged by the Department of Justice (“DOJ”), and that case remains pending.
DOJ And SEC File Securities Fraud Charges Against Founder Of Company Acquired By A SPAC
On July 29, 2021, the Department of Justice (“DOJ”) announced the unsealing of a criminal indictment against Trevor Milton, the founder, former CEO, and former Chairman of Nikola Corporation, a company that went public in March 2020 through a merger with a special purpose acquisition company (“SPAC”), for allegedly knowingly misleading investors about the company’s ability to build electric and hydrogen-powered vehicles and other green technology. The SEC filed a parallel civil action against Milton based on the same facts.
National Defense Authorization Act Passed Over President Trump’s Veto Expands SEC’s Disgorgement Authority And Reforms Anti-Money Laundering Laws
On January 1, 2021, the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) was approved by Congress, over the objections of President Trump who vetoed the bill a week before. In addition to authorizing appropriations for defense related activities, the NDAA brings two significant changes relevant to regulatory enforcement. First, the NDAA amends the Securities Exchange Act of 1934 (the “Exchange Act”), providing the U.S. Securities and Exchange Commission (“SEC”) with explicit statutory authority to seek disgorgement for civil actions and expanding the statute of limitation for securing this relief. Second, the NDAA includes the Corporate Transparency Act (“CTA”), which significantly expands the beneficial ownership disclosure requirements for U.S. entities.