The U.S. Securities and Exchange Commission (SEC) on Wednesday signaled it would take an increasingly aggressive stance with corporate executives and gatekeepers, including a greater focus on seeking guilty admissions and industry expulsions.
In remarks highlighting the importance of building investors' trust in Corporate America and financial markets, SEC enforcement director Gurbir Grewal said the agency will be seeking these remedies, marking a turn in strategy for the top U.S. markets regulator and the latest example of a shift under new leadership since President Joe Biden took office in January.
Too many corporations, executives and gatekeepers such as lawyers and auditors are not playing by the rules, failing to implement procedures for compliance, and or outright covering up fraud, Grewal said. Such misconduct undermines public trust, he said.
Putting the Public Interest First
"We will, in appropriate circumstances, be requiring admissions in places where accountability and acceptance of responsibility are in the public interest," Grewal said at an industry conference.
Historically, many of the agency's resolutions with public companies, financial firms and executives are finalized without the parties admitting or denying the agency's charges. In 2013, the Democratic SEC chair outlined a policy of pushing for more admissions of guilt in response to criticism that the long-time practice of no-admit settlements erodes public confidence and undermines accountability.
But academic research shows the remedy was still used very infrequently and saw little change when SEC enforcement officials under the Trump administration signaled a shift away from that strategy.
On Wednesday, SEC officials signaled other changes afoot in their plans for addressing market misconduct, highlighting that failure to maintain required communications or using technology that allows messages to disappear may be seen as spoliation of evidence. That would raise the stakes for corporate actors.
Empowering the Front Line
Officials also outlined a push for tighter timelines during enforcement negotiations and a plan to empower front-line staff, rather than top enforcement officials, to reduce the potential opportunities for firms or individuals to submit arguments and defense submissions.
When seeking credit for cooperation, corporations will not earn leniency for merely complying with their obligations to produce documents, said Sanjay Wadhwa, the SEC's deputy director of enforcement. They will need to meaningfully advance the "quality and efficiency" of the investigation, he said.
"Cooperation is not the mere absence of obstruction," he said.
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