In December 2020 the US Securities and Exchange Commission imposed a $200 million negotiated fine on a corporation for alleged disclosure failures relating to its power and insurance businesses. The company was said by the SEC to have given a ‘deceptively positive picture to investors about its operations’ from 2015 to 2017.
The company also allegedly failed to disclose worsening trends and the reasonably likely need for additional reserves to cover higher anticipated losses. It was alleged that it failed to disclose profit information adequately in the power business and worsening trends in the insurance business.
The SEC said ‘investors are entitled to an accurate picture of a company’s material operating results’ and the company’s ‘repeated disclosure failures across multiple businesses materially misled investors about how it was generating reported earnings and cash growth as well as latent risks in its insurance business’. The company neither admitted nor denied the failures.
Refreshingly, the SEC said that the $200 million will be returned to harmed investors.
The Company is required to report to the SEC about certain accounting and disclosure controls for a one-year period in relation to the power and insurance operations.
The temptation is always to paint as rosy a public picture as possible of how a company is doing. This can have serious consequences, financially and reputationally.