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SEC Whistleblower Lawyer Blog

Financial Fraud And Corporate Disclosures

Corporate regulations are nothing new. After the stock market crashed in 1929, plunging the U.S. into the Great Depression, federal regulation of corporate disclosures began. With the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, Congress attempted to make public companies more transparent about their financial transactions. Now, companies must make a wide range of financial disclosures to protect potential investors.  Federal regulations require that publicly held companies disclose all relevant financial information that may influence an investor's decision, which encompasses a broad swath of information. If a publicly held company fails to make required filings or disclosures or makes misleading or false statements in these filings, it may violate corporate disclosure rules. The most common violations of these disclosure rules are related to a company's earnings or income. If a company intentionally includes false or inflated information on its financial statements, it may be guilty of financial fraud.Corporate regulations are nothing new. After the stock market crashed in 1929, plunging the U.S. into the Great Depression, federal regulation of corporate disclosures began. With the passage of the Securities Act of 1933 and the Securities Exchange Act of 1934, Congress attempted to make public companies more transparent about their financial transactions. Now, companies must make a wide range of financial disclosures to protect potential investors.

Federal regulations require that publicly held companies disclose all relevant financial information that may influence an investor’s decision, which encompasses a broad swath of information. If a publicly held company fails to make required filings or disclosures or makes misleading or false statements in these filings, it may violate corporate disclosure rules. The most common violations of these disclosure rules are related to a company’s earnings or income. If a company intentionally includes false or inflated information on its financial statements, it may be guilty of financial fraud.

Sarbanes-Oxley

After major financial scandals, including the fall of Enron in 2001, Tyco International, and WorldCom, Congress passed the Sarbanes-Oxley Act of 2002 (SOX). The law expanded corporate disclosure requirements to help protect investors from fraudulent reporting. SOX worked to restore investor confidence in corporate records by focusing on:

  • Corporate responsibility, creating new rules for corporate officers,
  • Imposing stricter record-keeping requirements,
  • Establishing strict new rules for accountants and auditors, and
  • Increasing penalties for criminal violations.

Despite extensive regulations governing what companies must disclose, some continue to break the rules. For example, in May of 2022, the SEC announced it was charging SCWorx Corp., its CEO, and its chairman of the board with making misleading statements about its plan to distribute COVID-19 testing kits in the spring of 2020. Allegedly, the company, facing flagging finances, issued a press release stating it had a “committed purchase order” for two million test kits with “provision[s] for additional weekly orders of 2 million units for 23 weeks, valued at $35M [million] per week.” The company agreed to settle with the SEC over the agency’s claims that these statements were false and misleading and will pay a $125,000 civil penalty.

If you’re contemplating reporting financial fraud as a whistleblower, you’ll need an experienced attorney to guide you through the process. At Silver Law Group and the Law Firm of David R. Chase, our attorneys can help investigate and advise, protecting your rights. Call us today at (800) 975-4345, or email us to set up a free consultation.

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