Proactive Disclosure Review
and Regulatory Risk Assessment
Most securities enforcement actions do not begin with a dramatic investigation — they begin with a public filing, a press release, a promotional campaign, or an investor complaint that triggers staff review. By the time a company receives an inquiry letter, the disclosure record has already been created. The question is whether that record will withstand scrutiny.
Fred Lehrer spent nine years as an enforcement attorney in the SEC's Division of Enforcement reviewing exactly the types of disclosure that issuers, executives, and market participants create every day. That experience is the foundation of the firm's proactive disclosure review practice — identifying the patterns that attract enforcement attention before regulators do.
"The disclosure that creates enforcement exposure is rarely the disclosure that looks obviously wrong. It is the disclosure that is technically accurate but materially incomplete — the risk factor that describes the risk in general terms without explaining the specific facts that make it material, the MD&A that restates the financial statements without explaining what caused the results, the investor presentation that emphasizes the upside without disclosing the downside. That is the disclosure that generates comment letters, triggers inquiries, and creates personal liability for officers and directors."
Where SEC Enforcement Exposure Originates
Offering Document Disclosure
Offering circulars, private placement memoranda, and registration statements that contain material misstatements or omissions — including overstated projections, understated risk factors, undisclosed related-party transactions, and inadequate business description — are the primary source of securities fraud exposure for issuers and their officers.
Investor Communications
Press releases, investor presentations, social media posts, and promotional materials that contain forward-looking statements without adequate cautionary language, unsubstantiated performance claims, or material omissions create securities fraud exposure under Section 10(b) and Rule 10b-5 independent of any formal offering.
Form 8-K Timing
The four-business-day deadline for Form 8-K filings is measured from the date the triggering event occurs — not when management decides to disclose it. Delayed disclosure of material events, including executive departures, material agreement terminations, and asset dispositions, is a recurring source of SEC enforcement exposure.
Promotional Content
Paid promotional campaigns, stock promotion newsletters, and social media campaigns that are not properly disclosed as paid promotions violate the anti-touting provisions of the securities laws. The SEC has brought enforcement actions against issuers, promoters, and individuals who failed to disclose compensation for promotional activities.
Broker-Dealer and Finder Issues
Using unregistered finders who receive transaction-based compensation for introducing investors creates rescission risk, SEC enforcement exposure, and potential securities fraud liability. The SEC has brought enforcement actions against issuers who used unregistered broker-dealers in connection with Regulation D offerings.
Cap Table and Toxic Financing
Convertible notes, variable-rate conversion instruments, and toxic financing arrangements that result in undisclosed dilution, share issuances that exceed authorized share counts, or beneficial ownership reporting failures create both securities law violations and enforcement exposure for issuers and their officers.
SEC Enforcement Risk — Frequently Asked Questions
How does the SEC identify potential enforcement targets?
The SEC uses a combination of automated surveillance systems, investor complaints, whistleblower tips, referrals from FINRA and other regulators, and staff review of public filings to identify potential enforcement targets. The Division of Enforcement's Market Abuse Unit uses data analytics to identify suspicious trading patterns. The Office of Market Intelligence processes investor complaints and whistleblower tips. Staff attorneys review public filings for disclosure deficiencies.
What is the difference between an SEC inquiry and a formal investigation?
An informal inquiry does not carry subpoena power — the SEC can request documents and testimony voluntarily, but cannot compel production. A formal order of investigation authorizes the staff to issue subpoenas for documents and testimony. Receiving a formal order of investigation is a significant escalation that requires immediate legal counsel. Not all informal inquiries escalate to formal investigations, but the distinction matters for how the issuer responds.
What is a Wells Notice?
A Wells Notice is a written communication from the SEC staff to a potential defendant informing them that the staff intends to recommend enforcement action and providing an opportunity to respond before the recommendation is made. Receiving a Wells Notice does not mean enforcement action is certain — the decision is made by the Commission, not the staff. A Wells submission is the potential defendant's opportunity to present arguments against the recommended action.
What types of conduct attract SEC enforcement attention?
The SEC's enforcement priorities shift over time, but recurring areas of focus include financial statement fraud, insider trading, market manipulation, offering fraud, unregistered broker-dealer activity, investment adviser violations, and FCPA violations. For smaller issuers, the most common enforcement triggers are promotional campaigns without proper disclosure, undisclosed related-party transactions, and Form 8-K timing failures.
Request an Enforcement Risk Review
Fred Lehrer provides proactive disclosure review and regulatory-risk assessment for issuers, executives, and market participants. Consultations are confidential and available by phone, video, or in person.
Request a ConsultationThe information on this page is for general informational purposes only and does not constitute legal advice. Viewing this page or contacting the firm does not create an attorney-client relationship. Legal services are available only where the attorney is admitted or otherwise authorized to practice.