Trio of SEC Enforcement Actions Underscores Importance of Internal Controls, Including in M&A Context

In the past few weeks, the Securities and Exchange Commission (“SEC”) has announced three settled enforcement actions alleging violations of the internal controls provisions of the federal securities laws.

The cases are notable less for the SEC penalties involved—which ranged from no penalty to $400,000—but rather for the other, more dire consequences the companies experienced as a result of internal controls failures, such as financial restatements, delayed SEC filings that led to an exchange delisting, and serious employee misconduct that went unchecked.  The cases underscore the importance of establishing and maintaining effective systems of internal control over financial reporting.

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This article was republished by the Harvard Law School Forum on Corporate Governance blog.