What Triggers SEC Enforcement Action?

Disclosure Failures

The most common enforcement trigger is inadequate or misleading disclosure in SEC filings. This includes material misstatements of financial results, omission of material risks, failure to disclose related-party transactions, inadequate management's discussion and analysis, and misleading use of non-GAAP financial measures. The SEC's Division of Enforcement works closely with the Division of Corporation Finance, which reviews filings and refers potential disclosure violations. What begins as a comment letter exchange about disclosure deficiencies can escalate into an enforcement referral.

Offering Fraud and Exemption Violations

Companies that raise capital through unregistered offerings without qualifying for an exemption, or that conduct offerings with materially misleading offering documents, face enforcement action for violations of Section 5 (registration) and Section 17(a) and Rule 10b-5 (antifraud). The SEC has been particularly active in pursuing offering fraud in emerging industries where investor enthusiasm may outpace regulatory compliance, including cryptocurrency, cannabis, and technology sectors.

Insider Trading and Regulation FD

Insider trading remains a perennial enforcement priority. The SEC uses sophisticated market surveillance tools to detect unusual trading patterns around material corporate events. Companies that lack effective insider trading policies, that fail to enforce trading windows, or that permit selective disclosure of material nonpublic information to analysts or investors create enforcement risk for both the company and the individuals involved. Regulation FD violations, while sometimes treated as lesser offenses, can escalate into broader insider trading investigations.