October 14, 2021

SEC Enforcement: Tougher Penalties & Admissions On The Way?

Over on “Radical Compliance,” Matt Kelly recently blogged about Gurbir Grewal’s first speech as Director of the SEC’s Division of Enforcement, and he says Grewal signaled that the agency will take a harder line on penalties under his leadership:

The SEC’s new director of enforcement delivered his first speech this week, where he outlined a more aggressive use of monetary penalties to deter corporate misconduct and how the SEC will evaluate cooperation and other factors while deciding how large of a penalty to impose.

The speech came from Gurbir Grewal, who took over as head of the Enforcement Division at the end of June. He spoke Thursday at a forum hosted by the Practising Law Institute that nominally was about broker-dealer issues, but Grewal’s remarks on the SEC’s penalty policy are worth any compliance professional’s attention.

The bottom line: Grewal, like other senior officials at the agency, wants to see penalties actually deter corporate misconduct — which could well mean larger penalties than we’ve seen before. “As we evaluate relevant penalty factors, we will also be closely assessing whether prior penalties have been sufficient to generally deter the misconduct at issue,” Grewal said. “Where they have not been, you can expect to see us seek larger penalties, both in settlement negotiations and, if necessary, in litigation.”

The blog points out that Grewal’s comments echo those of Commissioner Caroline Crenshaw, who earlier this year called for the SEC to change its approach to monetary penalties in enforcement proceedings. Grewal also spoke at “The SEC Speaks” conference earlier this week, where he mostly said the same things that every newly appointed Director of Enforcement says. However, this part of his speech jumped out at me:

When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law, and so, in an era of diminished trust, we will, in appropriate circumstances, be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest. Admissions, given their attention-getting nature, also serve as a clarion call to other market participants to stamp out and self-report the misconduct to the extent it is occurring in their firm.

That suggests that the SEC may seek admissions of misconduct as part of settlements more frequently than in the past. It will be interesting to see how that plays out, because I think that some companies who’d be willing to throw an officer or two under the bus as part of a “neither admit nor deny” settlement may be more inclined to force the SEC to litigate if admissions are going to be required.

Speaking of enforcement, we’ve blogged several times about the SEC’s EPS Initiative – here’s a recent one from Liz – and now, the WSJ has taken notice as well. Sometimes, it’s hard to believe this blog is free, isn’t it?

John Jenkins