SEC Shows “Burying” Bad News Isn’t Just the Domain of Corporate Interests

Recently, we broke down some of the public relations games that companies have been known to play when they have bad news to report. For example, they might issue a press release on benign developments the same day they disclose damaging information in a filing with the Securities and Exchange Commission. The objective: Highlight the fluff and bury the bombshell.

It might surprise some to learn that the SEC has also been known to use PR balms to take the sting out of bad news.

Take a recent revelation that the commission had dismissed more than 40 enforcement cases, for instance. The news dropped earlier this month on a Friday afternoon that SEC had dismissed the actions because members of its enforcement staff inappropriately accessed materials intended for the officials tasked with ruling on the cases. It had all the makings of a classic “Friday news dump” – a PR tactic in which organizations release bad news near the end of the work week hoping the spotlight will fade over the weekend.

Moreover, you won’t find the news of the dismissals in a press release from the SEC. On June 2, the commission released a lengthy statement disclosing the findings of an investigation into what it described as “a control deficiency related to the separation of enforcement and adjudicatory functions within the agency’s system for administrative adjudication.” The investigation dated back to an SEC notice in April 2022 about enforcement employees accessing privileged legal records.

Separately, the SEC published an order on June 2 announcing the dismissal of “all pending proceedings that the review team found to be connected to the control deficiency.” The commission included a list of the 42 affected cases in an exhibit attached to the order.

In other words, it took some detective work parsing densely worded documents to figure out why the cases were dismissed. Subsequent developments offered even more catnip for conspiracy-minded critics of the SEC.

Just days after the SEC disclosed the case dismissals, the agency announced enforcement actions against two of the most prominent cryptocurrency exchanges, Binance and Coinbase. The actions represented the beginning of a long-simmering showdown between regulators and the crypto sector.

What better way for the SEC to draw attention away from its enforcement blunder than to announce it is going after some of the biggest names in crypto, right?

But back to reality. Conspiracy theories are fun but using a legal battle with crypto exchanges to distract from missteps in a few dozen low-level enforcement cases would be like trying to swat flies with a sledgehammer. Perhaps the best lesson here is simply that companies and government agencies alike can’t resist the temptation to downplay bad news.