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Enforcement Edge
November 8, 2021

Gary Gensler Provides Insight Into SEC Agenda

Enforcement Edge: Shining Light on Government Enforcement

Speaking at the Securities Docket’s annual Securities Enforcement Forum, SEC Chair Gary Gensler signaled a “get tough” approach to enforcement and identified several principles that will guide the Division of Enforcement’s decision-making in the coming years.

Although Gensler opened with the caveat that the views he discussed were his own and that he did not speak on behalf of the SEC, he indicated that the SEC will seek to ramp up accountability and enforcement, quoting Joseph Kennedy in saying that “the Commission will make war without quarter on any who sells securities by fraud or misrepresentation.” Gensler outlined four principles that will guide his term: (i) economic realities, (ii) accountability, (iii) high-impact cases, and (iv) process. He provided further insights on each:

Economic realities. First, Gensler indicated that the SEC would focus on the substantive “economic realities” behind instruments, products, and business models, rather than relying on labels. For example, Gensler said that “we hear terms like decentralized finance, defi, or currency, or peer-to-peer lending—it can seem easy to take these terms at face value. But make no mistake, regardless of the label or purported mission, we will be looking at the economic realities of a given product or arrangement to determine whether it complies with the securities laws.” Gensler said that the SEC would be focused on subjecting activities to “consistent regulation regardless of the entity, technology, or business model.” Gensler also stated that, when questioning whether a given action crosses over the line, companies and their attorneys, should “step back from the line,” because toeing the line “may not be consistent with the law or its purpose.”

Accountability. Second, Gensler indicated that both individual and institutional accountability is an “important part of the SEC’s enforcement agenda.” The SEC is prepared to use “all of the tools in our toolkit” to investigate bad actors, including administrative bars, penalties, injunctions, and undertakings. The SEC also will “seek a robust finding of facts” in cases that settle, and the facts will be published for public use. Gensler explained that “the public benefits and justice benefits from a robust finding of facts where the public can follow why we’ve done what we’ve done.” Moreover, making facts public “instills confidence in our financial markets.” Gensler further indicated that the SEC would emphasize seeking admissions, particularly in cases where “heightened accountability” is in the public interest. “When it comes to accountability,” he stated, “few acts rival admissions of misconduct by wrongdoers.”

High-impact cases. Third, the SEC will be seeking high-impact cases. Gensler described a high number of fraudulent schemes that impact the public, stating, “We will continue pursuing misconduct wherever we find it.” Gensler specifically raised cases of record-keeping violations, which he stated were important to pursue because, although they “may not grab headlines,” record-keeping regulations “are essential to market integrity.” Gensler referred back to the principle of stepping back from “the line” of violating the law, stating that by pursuing high-impact cases the SEC hopes to pull other actors back from the line by sending “a message to the rest of the market participants that certain misconduct will not be permitted.”

Process. Fourth, Gensler raised a few process issues that he hopes to improve, including timeliness, collaboration with other law enforcement agencies, and sourcing cases:

  • In terms of timeliness, Gensler differentiated “the bar’s incentives” from “our incentives at the SEC,” which is obliged by its public mission. The SEC will focus on ”bringing matters to resolution swiftly,” because “justice delayed is justice denied.” Gensler also stated that law firms should not use processes to delay investigations; for example, lawyers should avoid requesting multiple meetings on the same issues.
  • Gensler also discussed the SEC’s work with other law enforcement agencies, which he stated is “an important piece of what we do.” He mentioned Deputy Attorney General Lisa Monaco’s recent announcement of changes to DOJ policies regarding corporate criminal enforcement, including her direction that prosecutors must consider a corporation’s entire history of misconduct when making determinations about criminal charges. Gensler stated that Monaco’s new policies are in line with his view of how to handle corporate offenses.
  • Lastly, Gensler discussed ways that the SEC sources cases, including sourcing by whistleblower tips and self-reporting. Gensler requested, “If you mess up, please come talk to us. All things being equal, if you work cooperatively, you will fare better than if you try to mask it.” He stated that cooperating allows the SEC to investigate properly, allows the agency to move more quickly on the case, and potentially allows the SEC to identify further wrongdoing.

Gensler concluded by reminding the attorneys in the room that they “occupy positions of trust” and play a role in protecting investors and markets from securities violations. Overall, Gensler’s comments at the Securities Enforcement Forum confirm that the SEC will continue to increase its enforcement efforts and that we are returning to a more active and aggressive enforcement regime at the agency. Check back with Enforcement Edge as we continue to monitor and report on this increased enforcement activity.  

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.