The Gibson Dunn law firm has published a client alert highlighting some actions the SEC has initiated against independent directors of public companies whom the agency alleges have engaged personally in illegal or improper conduct, or have repeatedly ignored significant red flags. The memo looks at recent SEC enforcement actions against independent directors for insider trading, "willful blindness to red flags signaling fraud," and other intentional violations of the securities laws or egregious failures to act.
These cases highlight the SEC's interest in pursuing egregious cases of neglect or wrongdoing by public company directors, but should not be considered a focused sweep on independent directors. The enforcement actions do, however, highlight how important directors are to good governance and oversight, and the role the SEC expects independent directors to play.
Together, the most recent cases signal the Commission's continued interest in bringing enforcement actions against the directors of publicly traded companies when they personally violate securities laws or egregiously disregard their duties.
. . .
Although these cases represent allegations of significant abrogations of duty, they do highlight the importance of directors [in]:
- establishing procedures for handling and following up on complaints or allegations against management;
- appropriately responding to warning signs of possible management misconduct;
- consulting with counsel when questions arise; and
- ensuring that, when investigations of management conduct are undertaken, they are independent and thorough.
The full text of the Gibson Dunn client alert is available at: http://www.gibsondunn.com/Publications/Pages/SECTargetsDirectorsWhoIgnoreRedFlags.aspx