SEC Corporate Disclosure Issues: Bank Products, Oil Drilling, Conflict Minerals and Cybersecurity

CFTC Whistleblower attorneys Philadelphia

Investor disclosures have been a bit of a hot button issue this week, with three topics hitting the news that impact issues concerning what corporations are required to tell their shareholders and potential purchasers. Update: After reviewing the news, it looks like there are two more as well.

JPM Investment Steering

J.P. Morgan Chase is expected to pay more than $150 million to settle an investigation into the disclosures its bankers made to clients as they steered them to in-house products. The SEC and Office of the Comptroller of the Currency have been investigating for at least a year because the bank’s products typically have higher fees than other options in the marketplace. The investigation is into the practices of the wealth management division at JPM toward their private-banking clients.

The investigation also relates to potential conflicts of interests. SEC registered investment advisers must meet the fiduciary standard with their clients. If hedge funds pay placement agent fees to JPM broker-dealer affiliates, the advisers may be conflicted.

Separately, Indiana has been conducting an investigation into JPMorgan procedures concerning the suitability of investments for clients. The media reports do not indicate that this investigation will be wrapped up as part of the settlement talks with the SEC.

Offshore Drilling

The price of oil isn’t the only trouble that may be facing oil and gas companies. A group of Senators have sent a letter to the SEC asking them to investigate whether these companies have adequately disclosed the risks of their offshore operations to investors. The letter focuses on drilling in the Gulf of Mexico, Arctic Ocean and other areas. The Senators believe the inherent risks of environmental problems, equipment failures and financial costs may be insufficiently disclosed.

This letter follows up on a petition a number of organizations filed a petition with the SEC in April concerning disclosures made by Shell Oil regarding its Arctic drilling program. The petition suggests that the company has not adequately disclosed the potential for billions in losses from an oil spill at an exploratory well.

This could be an interesting potential area for a whistleblower with information about a company that is facing potential losses in the development of long term assets offshore and yet hasn’t disclosed them to investors.

Conflict Minerals

A portion of the corporate disclosures required by the Dodd-Frank Act has been invalidated by a D.C. Circuit Court of Appeals ruling this week. Companies must file reports with the SEC stating whether products are free of conflict minerals. However, the company can not be forced to disclose on its website that its products are not conflict free. The D.C. Circuit relied on the free speech clause of the First Amendment.


The Ashley Madison hack and release of information about its customers may also cause the SEC to take another look at the disclosures required by corporations to investors related to cybersecurity. The SEC released guidance on cybersecurity issues to registered investment advisers this year but the last guidance for corporations related to cybersecurity risks and cyber incidents was issued in 2011. Given the substantial intrusions in this area since then, it seems like a topic that is ripe for additional comment by securities regulators. Ashley Madison isn’t publicly traded, but earlier this year it had discussed an IPO in London in the future. The escalation of these sorts of issues, including the insider trading cases, however, has to be on the radar of the SEC at this point.

Quarterly Reports

Wachtell, Lipton has asked the SEC to consider eliminating the requirement for quarterly earnings reports. Corporations have come under criticism from politicians and others recently for share buybacks and other gimmicks to increase stock gains in the short term while neglecting long term investments needed to increase shareholder value in the long term. Corporations have been required by the SEC to provide a quarterly financial report since the 1970s. The original requirement dates back to 1934, when the annual requirement was installed.

Photo Credit.