Under the law, the Securities and Exchange Commission (SEC) can investigate and enforce violations of the nation’s securities laws. On the agency’s website, the SEC provides examples of conduct it is “interested in,” such as Ponzi schemes, insider trading, bribery of foreign officials, and false or misleading statements about a company in SEC reports or financial statements. But all of that seems worlds away from allegations relating to sexual harassment at a company—even if it’s a publicly-traded one. So how does the SEC get “interested” in that?
Ironically enough, allegations of sexual harassment themselves are probably not enough for the SEC to get involved. That is not to say that targets of sexual harassment would be without recourse. For example, they could file complaints with the Equal Employment Opportunity Commission or a state labor office. But for the SEC to become involved, there needs to be a tie into securities laws. This can include a corporate culture that leads to misconduct or an impact on the company’s stock price. This can be at a publicly traded company of at a Wall Street brokerage firm.
One of the primary ways that occurs is if a company fails to reveal harassment-related complaints against its leadership or resolution of lawsuits. Companies are required to disclose to the SEC, and shareholders, any litigation or other controversies. Therefore, if a company was investigating the staff’s behavior, or if it had responded to related litigation, that should be included in required SEC filings. Companies also have duties not to mislead investors in filings. So a company can’t promote the excellence of its leadership team, if they know that the team is operating under a cloud.
In either scenario, withholding information relating to sexual harassment means that the company is misleading investors. Had the truth come out, it would have likely impacted the company’s valuation, so the SEC can now look into these allegations as false or misleading statements in an SEC report or financial statement.
Additionally, as of November 2020, the SEC added new disclosure requirements for “human capital,” so companies will need to disclose employment metrics—meaning that, again, companies can be sanctioned for their failure to accurately disclosure what is going on in the human resources side of their organizations.
While this is still a burgeoning area of law, what is already clear is that whistleblowers shouldn’t decide on their own what is, and isn’t, of interest to the SEC. Instead, the law is complex, and if you’re considering becoming a whistleblower, it is important to seek the advice of experienced securities attorneys to help you decide if the SEC or another enforcement agency is the best to address your issue. Silver Law Group is here to help. Our former Wall Street attorneys represent victims of Wall Street misconduct in SEC Whistleblower claims, FINRA employment claims in securities arbitration and in state of federal court. For a free, confidential consultation, email us or call us today at (800) 975-4345.