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In remarks at the Practising Law Institute's 2021 SEC Speaks program, SEC Division of Enforcement Director Gurbir Grewal asserted that the "decline in trust in our financial markets" is in part a result of "repeated lapses by large businesses, gatekeepers, and other market participants." He said that regulators do not hold these parties sufficiently accountable.
Mr. Grewal stated that the Division will take forward-looking action on the following:
- Corporate Responsibility. To hold companies more accountable for failing to establish adequate compliance controls, Mr. Grewal stated that the Division intends to more aggressively enforce perceived disclosure, insider trading and recordkeeping violations, as well as the "obfuscation of evidence from the SEC or other government agencies." Mr. Grewal asserted that the Division must pursue enforcement action against public companies that fail to make sufficient cybersecurity event disclosures.
- Gatekeeper Accountability. Mr. Grewal stated that "gatekeepers," including lawyers, senior management, auditors and other individuals involved in companies' decision-making as it affects securities law compliance, serve as the "first lines of defense against misconduct." He emphasized that gatekeepers who encourage companies to operate within areas of legal ambiguity or err too close to noncompliance will be a major focus of the Division's enforcement efforts.
- Crafting Appropriate Remedies. Mr. Grewal stressed that, to deter misconduct, the Division will aggressively recommend "prophylactic tools," including requiring admissions of wrongdoing in certain cases, to signal to market participants that they should carefully assess whether such misconduct is occurring at their firm and self-report it as necessary. Mr. Grewal also stated that the Division will use its authority to more broadly impose officer and director bars and require undertakings tailored to an entity's misconduct.
- Trusting and Empowering Division of Enforcement Staff. To more efficiently employ the Division's resources, Mr. Grewal stated, the Wells process needs to be revised so that cases that do not raise novel legal questions would not involve additional meetings with the Director or Deputy Director.
Commentary
The Director's comments about the revisions to the Wells process will likely prove to be his most important. Changes in how Division leadership exercises its enforcement discretion will need to be watched especially carefully in the months ahead.
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