Understanding Wildcatting

Basics

The Securities and Exchange Commission (SEC) has implemented a practice known as wildcatting, which involves conducting a comprehensive industry review in response to significant issues detected in one or two companies within that industry. This approach aims to address and rectify any crucial problems that may arise in specific companies and extend its impact to the entire industry under scrutiny.

What Is Wildcatting?

Exploring a range of crucial matters such as accounting irregularities, executive compensation, and the utilization of derivative transactions, the SEC possesses the authority to scrutinize a specific company. Leveraging this investigation, the SEC expands its reach to encompass other firms within the same industry.

Drawing inspiration from the oil industry's practice of drilling test wells in untapped and remote regions, this approach, known as wildcatting, aims to extend its scope to industries or practices that raise concerns for the SEC, even in the absence of clear indications of misconduct. Notably, this proactive initiative has enabled the SEC to conduct comprehensive inquiries into diverse sectors, including oil, cable TV, and video games.

The origin of this policy can be traced back to the Sarbanes-Oxley Act of 2002, which sought to enhance transparency for investors and paved the way for this transformative approach in the securities industry.

Conclusion

Wildcatting has become a significant practice within the SEC, involving the comprehensive review of an entire industry when significant issues arise in one or two companies within that sector. Originating from the oil industry's method of drilling test wells in untapped areas, wildcatting extends its reach to industries or practices of concern, even without clear indications of wrongdoing.