Personalities matter in capital markets regulation, both in terms of priorities and approach. Personalities also matter to how relationships among stakeholders, regulatory staff and legislators are developed, fostered and monitored. And most certainly personalities matter in terms of how enforcement matters are identified, investigated, pursued and acted upon. At the Ontario Securities Commission (the OSC), the regulators to Canada's largest capital market, Jeff Kehoe, who had been director of enforcement since 2016, announced his departure on January 22, 2024. Since then, the OSC has been looking for his replacement.
On October 2, 2024, the United States Securities and Exchange Commission (the SEC) announced the departure of its enforcement director, Gurbir Grewal. Mr. Grewal's three-year tenure was marked by increased emphasis on proactive enforcement efforts and specific scrutiny on crypto industry participants. Given the impact SEC initiatives understandably have on Canada's regulators, it is not surprising that SEC enforcement priorities tend to influence those of Canadian regulators, and certainly have done so in the past number of years.
Mr. Grewal's departure raises questions about the role played by those leading the enforcement branches of securities commissions, both in the United States and in Canada, and the extent to which their personal agendas should dictate the actions that these commissions choose to pursue. This question is particularly important and timely to Ontario market participants as the Ontario Securities Commission has just announced its new Executive Vice President of Enforcement, Bonnie Lysyk.
A tenure marked by a specific agenda
Mr. Grewal's background demonstrates a long-standing commitment to enforcement. Mr. Grewal is a litigator and, before joining the SEC, he served as the Attorney General for the State of New Jersey and the chief law enforcement officer of Bergen County's Prosecutor's Office, among other positions.
Mr. Grewal entered his role as enforcement director in 2021 with a clear agenda for his position. Specifically, Mr. Grewal emphasized proactive enforcement efforts, prophylactic tools and novel remedies. For example, Mr. Grewal worked to move away from "no-admit, no-deny" settlements, which enable a party to settle a matter without making any express admissions of guilt. (Osler's Risk Blog has previously written about the increased scrutiny over these settlements in the U.S.)
In 2022, Mr. Grewal called for an increase in the pace of SEC investigations. During his tenure, the Enforcement Division recommended, and the SEC pursued, over 2,400 enforcement matters. These matters resulted in orders for more than $20 billion in disgorgement, prejudgment interest and civil penalties, and industry bars against approximately 350 individuals. For the 2022 fiscal year, the SEC reported the largest enforcement haul in SEC history, with over $6.4 billion in penalties and disgorgement collected. This was a significant increase from the 2021 fiscal year, which totaled only $3.8 billion.
Under Mr. Grewal's leadership, and guided by the strong motivating words of the SEC chair to whom they report, the Division targeted non-compliance in the crypto industry, with over 100 enforcement actions taken against various crypto players. Mr. Grewal's focus on crypto was evidenced by the SEC's announcement in 2022 that its Crypto Assets and Cyber Unit was nearly doubling in size. Throughout Mr. Grewal's tenure, the unit was involved in well publicized actions against several giants in the crypto industry, including FTX, Binance, Coinbase and Ripple Labs.
Mr. Grewal is reported to have joined the firm Millbank LLP as a partner. The Deputy Director of the SEC's Enforcement Division, Sanjay Wadhwa, will serve as acting enforcement director upon Mr. Grewal's departure. It remains to be seen whether Mr. Wadhwa will follow in his predecessor's footsteps or choose his own enforcement objectives to pursue. In the alternative, perhaps the SEC will use Mr. Grewal's departure to limit enforcement driven by directors' specific agendas and opt for a more standardized approach.
Implications for the Ontario Securities Commission
Likewise, the enforcement division of the OSC is undergoing significant change. On October 7, 2024, the OSC announced that Bonnie Lysyk will be joining the OSC as the Executive Vice President of Enforcement. In this role, Ms. Lysyk will be responsible delivering the regulatory deterrent for capital markets misconduct.
Most significant to observers is the fact that not only is Ms. Lysyk not a lawyer, her résumé suggests limited enforcement experience and no notable exposure to Canada's capital markets. Ms. Lysyk has previously served as the Auditor General of Ontario, the Provincial Auditor of Saskatchewan, and the Deputy Auditor General and Chief Operating Officer in Manitoba, and has held various senior positions within the private sector. It remains to be seen what specific enforcement objectives she will bring to her new role, or how her previous experiences will impact her goals.
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