SEC Director of Enforcement Urges Greater Internal Vigilance and Reporting by Businesses

In a recent discussion at the SEC Securities Enforcement Forum 2023, Gurbir Grewal, the director of the Securities and Exchange Commission's (SEC) Enforcement Division, emphasized the need for businesses to enhance their internal policing and improve the reporting of violations to the SEC. Reflecting on the SEC's performance in fiscal year 2023, which concluded on September 30, Grewal described it as an exceptionally productive year for enforcement actions.

The SEC places a high value on firms' self-policing efforts and takes these into account when determining penalties. Grewal emphasized that the SEC has been clear about the behavior that results in either zero penalties or reduced penalties. This includes cooperation in the investigation process and a proactive approach to remediate misconduct and compensate victims.

Cooperation, in this context, may involve providing the SEC with crucial financial information and documents not previously identified, as well as facilitating interviews with former employees. Grewal acknowledged that some companies perform better than others in this regard. The SEC evaluates the extent of cooperation, considering it alongside the severity of the violations, to make a determination about penalties.

However, the specific circumstances of each case mean that penalties can vary. For example, a company that self-reports a violation after a prolonged period of misconduct may receive a different penalty than one that reports promptly. Grewal emphasized that the facts of individual cases play a significant role in penalty assessments.

Grewal also addressed the SEC's increased use of subpoenas during fiscal year 2023, noting that the SEC resorts to subpoenas only when individuals or entities are obstructing investigations or not cooperating significantly. He explained that this occurred more frequently during the past fiscal year compared to previous years.

Regarding the Wells Notice process, where the SEC invites representatives from firms to present their perspective before potential enforcement actions, Grewal mentioned that the agency rarely denies such a meeting. However, he clarified that not every case merits a meeting at the director level, indicating that the SEC evaluates the necessity of these meetings on a case-by-case basis.

By fLEXI tEAM