Is a Trump SEC a Hazard for Investors? A Year-End Look at the Data and Long-term Trends

Is a Trump SEC a hazard for investors?  At year-end 2016 we were tracking 128 undisclosed SEC investigations and 132 at year-end  2017.  By year-end 2018, however, the number dropped dramatically, to only 82 now.  That's down over 35% since he took office. #Corpgov

10 years ago at year-end 2008, we were tracking 89 undisclosed SEC investigations.  Longer-term we typically track about 85-100 at any time.  The 82 undisclosed SEC investigations we are tracking today is lower than, but somewhat consistent with longer-term trends.

Most of the recent decline appears to be due to multi-company investigations started in the pre-Trump days now ended.  This includes broad probes into use of non-GAAP metrics; whistleblower policies; and an industry-wide probe of disclosure practices in the airline industry.

Keep in mind that SEC investigations can last a long time.  If a series of industry-wide investigations from a couple years ago have now ended, but there's not new ones being started, then the numbers will likely stay low. In that case, a Trump SEC may truly be bad for investors.

Aside from Trump's impact, a greater concern comes from sleazy behaviors we see from some companies.  One ploy is for a company to confirm an SEC investigation in a news report without later issuing related SEC filings or press releases.  $SNAP did this in November.

We also continue to get documents from sizable, formal, and serious SEC investigations that were never disclosed to investors. Many of the senior managers are still there afterwards.  Too often those that disclose do so with the scantest of detail and no substantive updates.

The most consistent pattern we have seen for the 20 years of doing this kind of work, is the lack of push-back and challenge from investors regarding SEC investigations that are disclosed.  Management judged the risk material enough to require disclosure - you need to know why.