The COVID-19 pandemic has introduced new corporate disclosure issues and increased the attendant risk of securities fraud actions, as evidenced by plaintiffs’ initial filings across the country in the past few weeks. This article discusses the significance of those initial suits to public reporting companies and how companies can tailor and update their disclosures to lessen the risk of future lawsuits. We also explore potential D&O liability risk arising in the context of the pandemic, including risk in the context of insolvency that is facing many companies for the first time.
Ultimately, public companies’ best defense is to be thoughtful and diligent in updating their risk disclosures and any earnings guidance—and possibly to withdraw guidance altogether at this time—as well as to ensure close collaboration with their accountants and auditors on the accuracy of estimates, reserves, asset valuations, and other impacted financial reporting matters. Internally, companies should take steps to make sure their internal controls are sufficient to manage heightened and new risks. Risk avoidance is the last bastion in the battle for corporate health and longevity during this tumultuous time in history and in the stock markets.
‘Enforcement 40’ for 2020
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