Remarks at SEC Speaks

Thanks Gurbir, and thank you to the organizers of this conference. I know it’s a lot of work, and we appreciate the opportunity to reach such a wide audience. Speaking of the audience: good morning, it’s very nice to be here with you all.

It’s been almost a year since Gurbir and I attended our first SEC Speaks in our current roles. As such, I think it’s a good time to take stock. So today, before I introduce our next panel, I would like to briefly update you on some of the policies and practices that we announced last year.[1]

I’ll start with our approach to remedies. Last fall, in his first speech as Director, Gurbir explained why firms should engage in proactive compliance by, for example, thinking about the intersection between business and technologies.[2]

He also noted that when firms don’t engage in this type of proactive compliance, and consequently violate their regulatory obligations, the SEC will take vigorous enforcement actions. Building on this, last year at SEC Speaks, Gurbir highlighted several core goals animating our approach to enforcement actions.[3] Chief among these were deterring misconduct, affirmatively shaping market behavior, and ensuring public accountability. Since that time, we have emphasized these goals as we work with our teams to craft effective enforcement recommendations to the Commission.

An excellent example is the Commission’s settled action, last December, against J.P. Morgan Securities.[4] Judging by the volume of client alerts the settlement generated, I suspect most of you in the audience are familiar with this case. As you know, the SEC charged JPMS for widespread and longstanding failures by the firm and its employees to maintain and preserve written communications, including text messages, which concerned the firm’s business and were therefore subject to statutory and regulatory recordkeeping requirements.

Now, books-and-records violations don’t typically generate headlines. But when a major firm is ordered to pay the SEC a $125 million penalty, with another $75 million to the CFTC for parallel violations, the media takes note. Based on all those client alerts I mentioned, the bar takes note. I believe that the industry takes note. In sum—the market takes note. This is essential for deterrence.

When the firm admits its misconduct and owns its violations, as JPMS did, that delivers much-needed public accountability.

And when the firm agrees to implement robust improvements to its compliance policies and procedures, and the SEC’s order lays out those improvements, other market participants are provided with one potential roadmap of what proactive compliance looks like.

In sum, I believe this is the type of enforcement action that deters misconduct, ensures accountability, and positively shapes behavior by encouraging proactive compliance with the type of important regulatory requirements at issue here. Because these requirements are important; they safeguard our ability to conduct enforcement investigations related to all types of potential misconduct.

So that illustrates how we are acting on our principles when it comes to major firms. But how are we ensuring increased accountability, and shaping behavior, for individual market participants?

Our chief counsel Sam Waldon’s going to talk about this in greater detail on the panel you’re about to see, so I won’t totally steal his thunder. But I want to draw your attention to another important element of several recent enforcement actions—an element that creates accountability and establishes incentives to prevent corporate wrongdoing—and that is the Commission’s use of SOX 304 orders against executives who were not charged under any additional provisions.

These orders provide a form of public accountability for senior executives who presided over a firm at which misconduct occurred that required their firms to restate their financials.

And by requiring those executives to reimburse the company for certain types of compensation and profits from stock sales, these SOX 304 orders further incentivize senior executives to prevent and detect such misconduct at their firms.

The flip side of enhancing public accountability and shaping behavior is rewarding companies and individuals that hold themselves accountable for misconduct and proactively cooperate and remediate.

Over the past year, we have worked to communicate to the bar, the industry, and the public what we consider to be the core elements and benefits of cooperation with our investigations.

For example, the Commission’s charging documents against large public issuers such as the healthcare firm Baxter International[5] and the infrastructure company Granite Construction[6] describe in some detail the steps those firms took to facilitate the SEC’s investigations and remediate their misconduct. And in other cases, the Commission has rewarded extraordinary cooperation from companies like Headspin,[7] ProPetro,[8] and others by declining to impose penalties. In other words, we are using both carrots and sticks to achieve our ultimate investor protection goals.

Other priorities we discussed last year included empowering staff and streamlining our processes, where possible. A prime example has been our approach to the Wells process. As announced, we have declined requests for Wells meetings in cases where we did not see novel legal issues, significant policy questions, or other considerations that weighed in favor of our participation.

I want to state this clearly: the Wells process remains important to us. Your submissions continue to inform our decision-making as we assess potential recommendations to the Commission.

Moreover, we have, of course, participated in a number of Wells meetings, and we have walked away from potential recommendations after some of those meetings. In short, we take the Wells process seriously, but we also take seriously the investment of time that these meetings entail on all sides. Most of all, we take seriously the time and the informed, expert perspective of our attorneys, accountants, specialists, and other professionals.

That’s why Gurbir and I continue to look for ways to empower the Division’s talented and dedicated staff. It’s important to us that staff know their contributions are recognized, and their experience and perspective are respected. And as Gurbir mentioned, creating a workplace that rewards creativity and diligence, and that offers meaningful leadership opportunities, also enables us to attract and retain such a diverse and talented staff. It’s exciting to see all of the leaders on division staff who are now seizing chances to lead in more senior roles. And we’re thrilled to welcome into our ranks so many talented new hires. I truly believe that the Division today is as talented, diverse, and dynamic as it’s ever been.

And, that brings me to our next panel, composed entirely of Senior Officers who have assumed their current roles since last fall. Kicking things off will be the Chief Counsel of the Enforcement Division, Sam Waldon.