The U.S. Securities and Exchange Commission (SEC) has signaled that it will continue its focus on foreign private issuers and cross-border enforcement, even during the shutdown. This week, the agency suspended trading in nine foreign companies—all based in Asia, with six incorporated in the Cayman Islands—citing alleged securities law violations involving stock price manipulation through social media. These actions, taken after the government shutdown began on October 1, underscore the SEC’s prioritization of cross-border enforcement despite limited staffing. You can view the full list of recent trading suspensions here.[i]
The enforcement activity may reflect the early work of the SEC’s newly launched Cross-Border Task Force (CBTF) within the Division of Enforcement. The CBTF builds on the foundation laid by the SEC’s Cross-Border Working Group.[ii] The CBTF expands on the Working Group framework with a focus on investigating foreign-based issuers and gatekeepers whose conduct impacted U.S. markets and using broader inter-agency coordination and a more proactive approach.[iii]
The CBTF efforts are consistent with the SEC’s general focus on cross-border issues, especially its ongoing review of the definition of “foreign private issuer” (FPI), a classification that exempts certain non-U.S. companies from key disclosure and governance requirements. Currently, FPIs are allowed to file Form 20-F instead of Form 10-K and to use IFRS accounting standards, and are generally exempt from the U.S. federal proxy rules and Exchange Act Section 16 insider reporting obligations and short swing profit liability for officers, directors, and 10% shareholders. While these exemptions are designed to attract foreign investment, the Commission believes they can also create regulatory blind spots—particularly in jurisdictions the Commission perceives have limited oversight. The SEC has issued a concept release inviting public comment on whether the FPI definition should be updated to reflect current market realities.[iv] Freshfields submitted two comment letters on the Concept Release.[v][vi]
The recent trading suspensions and FPI Concept Release also should be viewed alongside the SEC’s continued use of an expansive view of its extraterritorial authority. The SEC’s jurisdictional reach is not confined to U.S. borders. Under the Dodd-Frank Act, U.S. securities laws apply to conduct abroad that has a substantial effect on U.S. investors or markets. This contrasts with limits on the extraterritorial application of U.S. securities laws in the private litigation context in the wake of the Morrison decision. This extraterritorial authority enables the SEC to pursue enforcement actions against foreign entities whose activities impact U.S. markets, regardless of where the conduct occurred. However, such efforts are often complicated by jurisdictional barriers and limited cooperation from foreign regulators.
The CBTF’s mandate includes investigating foreign-based issuers suspected of fraud, scrutinizing gatekeepers such as auditors and underwriters, and focusing on insider trading and market manipulation in high-risk jurisdictions—most notably China. The Task Force is operating across multiple SEC divisions and is expected to coordinate with other government agencies, including the Department of Justice, self-regulatory organizations, and Congress.
What This Means for Market Participants
The SEC’s recent actions and structural changes signal a more assertive and coordinated regulatory posture toward foreign entities accessing U.S. capital markets. Companies and financial institutions should prepare for increased scrutiny, reassess compliance frameworks, and anticipate potential rule changes. Gatekeepers facilitating access to U.S. markets may also face heightened liability.
Recommended Actions for Clients, include:
- Evaluate Exposure: Review your company’s or clients’ cross-border activities, especially those involving U.S.-listed securities or U.S. investors.
- Reassess Compliance Frameworks: Ensure internal controls, disclosure practices, and governance structures align with evolving SEC expectations.
- Prepare for Heightened Scrutiny: Anticipate increased regulatory attention, particularly if operating in jurisdictions flagged by the SEC.
- Review Gatekeeper Relationships: Assess the diligence and oversight of auditors, underwriters, and other intermediaries facilitating access to U.S. markets.
- Monitor Regulatory Developments: Stay informed on potential changes to the foreign private issuer definition and related disclosure obligations.
We are closely monitoring these developments and are available to help assess exposure, prepare for heightened oversight, and adapt compliance strategies accordingly.
[ii] In the interest of disclosure, one of the authors (Melissa Hodgman), was the former head of the Cross-Border Working Group.
