May 16, 2022

SEC Enforcement Director Criticizes Defense Bar (Again)

In a speech at the Securities Enforcement Forum West 2022 Conference, SEC Enforcement Director Gurbir Grewal discussed the factors that can contribute to delays in SEC investigations, and he laid the blame on the tactics used by defense counsel, including Division of Enforcement alums. His remarks echoed warnings about defense counsel delaying tactics that Robert Khuzami had made when he was the Director of Enforcement a decade ago – apparently not much has changed during that time in the Staff’s view.

The tactics that Director Grewal finds troubling include: (i) blowing through document production deadlines, document dumps or trickling in the document production; (ii) overly coaching witnesses and lodging in objections or otherwise interrupting testimony; (iii) making questionable privilege claims; and (iv) representing multiple clients when conflicts are inevitable. Grewal encourages defense counsel to act in a manner that facilitates cooperation, stating:

Now, I’m often asked to further explain what I mean by cooperation. To me, cooperation is more than the absence of obstruction; it’s an affirmative behavior.

If you’re delaying our investigation by slow-walking document productions, trying to put off witness testimony for an excessive time, or being obstructive during testimony, you’re not cooperating, no matter what your client’s 8-K may say.

There’s no exhaustive checklist of what constitutes cooperation, though as described in the Seaboard report, behaviors such as self-reporting and remediation fall within the cooperation rubric.

But here are some more examples of good cooperation: when your clients are involved in an investigation, you can make documents or witnesses available to us on an expedited basis, highlighting “hot” documents or providing translations of key documents where applicable.

You can flag documents that you know we’re interested in, even if they might arguably, under a certain reading, fall outside the scope of a subpoena.

You can make presentations to the staff during an investigation that are not simply advocacy pieces, but that meaningfully illuminate events.

And, where your client may have violated the law, you can counsel them to own that violation and work in good faith to remedy it.

In short, you can take steps that enable us to efficiently conduct our investigations, protect investors, and rebuild trust in our markets and the law.

We shall see how this message is received this time around.

– Dave Lynn