Although the SEC only has civil enforcement powers, it can (and will) bring in the Justice Department if you lie to SEC investigators. Better to take your civil medicine (fine or industry bar) than to wind up a guest of the state.
In its 2017 fiscal report, the SEC’s Enforcement Division cites individual accountability as one of its core enforcement principles. The report expresses the Enforcement Division’s view that “individual accountability more effectively deters wrongdoing.” Since Chairman Clayton took office, the SEC has charged an individual in more than 80% of standalone enforcement actions. The report notes that it can be more expensive to pursue individuals, but “that price is worth paying.” The report notes a modest decrease in filed enforcement actions and recoveries since 2016: 754 vs. 784 cases (excluding municipal cases) and $3.8 Billion vs. $4 Billion in total money ordered.
OUR TAKE: “Just because you’re paranoid doesn’t mean they aren’t after you.” (Joseph Heller) The data and the explanation imply that the SEC will prioritize prosecuting individuals, even if the money ordered is smaller than in institutional actions, because of the fear and deterrent effect. If financial executives need another reason to engage a best-in-class compliance program, how about protecting yourselves from a career-ending enforcement action?
The SEC’s Enforcement Director, Andrew Ceresney, recently described how the SEC has prioritized FCPA (Foreign Corrupt Practices Act) enforcement with a focus on individual liability. Mr. Ceresney said the SEC has brought 21 FCPA cases and has taken “a lead role in fighting corruption worldwide.” Describing some recent FCPA enforcement cases, Mr. Ceresney highlighted the Enforcement Division’s “renewed emphasis on individual liability,” which includes holding CEOs accountable for ignoring red flags. Mr. Ceresney explained that “pursuing individual accountability is a critical part of deterrence.”
OUR TAKE: Individual liability should be a significant concern when the SEC and DoJ enforce the FCPA, which can carry criminal penalties. Firms should ensure a monitoring system that includes adequate follow-up on potential red flags.
In a recent speech, SEC Chair Mary Jo White called for “zero tolerance” for white collar enforcement and advocated for changing the law to make it easier for prosecutors and regulators. Ms. White described the SEC’s “priority that we are placing on establishing individual liability” with a focus on holding corporate officers accountable as the “core pillar of any strong enforcement program.” Ms. White argued for changes in the law that would allow prosecutors and regulators to punish an executive without showing that s/he participated or caused the wrongdoing. Ms. White lauded the UK regime that allows prosecution of senior executives for misconduct in their areas of responsibility if they failed to take reasonable steps to prevent the misconduct. Ms. White also expressed her support for deferred compensation arrangements that hold back compensation until a possible prosecution period has run. Ms. White also expressed support for a more-empowered SEC: “Although I often wish it were otherwise, the SEC does not have the authority to send anyone to jail.”
OUR TAKE: While the regulatory emphasis may change with a new Administration, both parties appear to favor heavier-handed enforcement against individual corporate actors. Other developed economies (e.g. UK, Japan, Canada, France) take a much more pro-government approach to private sector enforcement.