Thank you for that kind introduction, Michele (Layne). And thank you to the organizers of this important conference for the invitation to speak to you today. Having now spent several months as its Director, I appreciate this opportunity to discuss the direction in which the SEC’s Division of Enforcement is headed – a topic I know is of particular interest to this group.
Before I begin, however, please note that my remarks today are made in my official capacity as the Director of the Division of Enforcement and may not reflect the views of the Commission, the Commissioners, or other members of the staff.
Background
Before I dive into the Division’s current priorities, I’d like to take a step back. My legal career has been profoundly defined by public service: in the Marine Corps, as a law clerk, and on the bench. I see my current role as a continuation of this commitment to public service.
As I told the Division staff in my first week on the job, I did not seek the role of Director of the SEC’s Enforcement Division. Rather, this role found me. And for that, I am grateful to have the opportunity to assist Chairman Atkins in righting the ship from some of the excesses of the prior administration.
And I’m grateful for the opportunity to make my first public remarks here today, because I want to share with you my guiding principles as Director, how those principles relate to the Division’s process and priorities – which we are continuously evaluating and always looking to improve – and why I believe these principles complement those of Chairman Atkins.
So, principles, process, priorities.
Guiding Principles
I haven’t been leading the Division long, but I’ve been here long enough to see and admire the deep technical expertise held by both the Commission staff and the securities bar, developed and nurtured over the last ninety-plus years.
With that context, however, I offer that my guiding principles as the Director are no different than those which have guided me as a Marine, as a law clerk, and as a judge.
Namely, integrity, honor, fidelity to the law, and an unwavering commitment to the fair and judicious use of the formidable power and resources the federal government has entrusted to me. To quote Spiderman, with great power comes great responsibility.
I believe these principles mirror the Chairman’s commitment to upholding the rule of law and ensuring fair process to all those who participate in and benefit from our capital markets. And, under his leadership, it is a true privilege to lead my extraordinarily talented staff as they animate these principles every day.
Now, I am acutely aware of the criticisms of how the Division operated in the past, some of which I think are valid and warranted course correction. But I will not let the Division be weighed down by criticism that is misinformed, has been remedied, or only exists as historical artifact. Our mission – of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation – is too important.
So today, I will discuss two primary topics: process and priorities.
Process
I want to start with an aspect of our work that is important to me as well as to Chairman Atkins: the process the Division provides to those involved in enforcement investigations. The Division of Enforcement is committed to providing transparent and appropriate process to individuals and to companies under investigation by Enforcement.
One of the ways we demonstrate this commitment is by adhering to the Wells process, which is a mechanism through which the enforcement staff notifies potential defendants or respondents of charges – and the basis for those charges – in advance of recommending the Commission authorize those charges. The proposed defendant or respondent now has a four-week window to make a submission explaining why the Commission should not authorize an enforcement action, stating their position on the merits.
This is a meaningful opportunity for Wells recipients to address key issues of fact or law before an enforcement recommendation is made. Wells recipients are also typically granted the opportunity to meet with Division leadership to “make their case.” This is a very meaningful opportunity.
As a judge, I recognize the virtue of an adversarial system and its propensity to reveal the right conclusion, and to get to the truth. As the Director I see that virtue in the Wells process. By facilitating an open, informed, and thoughtful dialogue between staff and parties under investigation, we not only provide transparency and a fair opportunity to respond, but we also receive the benefits of zealous advocacy regarding the strengths and weaknesses of the case. This ensures that, before taking the significant step of recommending an enforcement action, a recommendation which will have real effects on individuals and businesses while occupying significant enforcement resources, we – and the Commission – have considered a more fully-developed record and put ourselves in the best possible position to “get it right.”
A member of the enforcement senior leadership team will attend every Wells meeting, and I can assure you that all Wells submissions will be read and carefully considered.
And, as Chairman Atkins recently noted, the Commission also receives the submissions and is expected to read them – and I am convinced that they do. A compelling Wells submission can and may make a difference both at the enforcement recommendation stage and when the Commission is determining how to vote on an enforcement recommendation.
But this process only works if both sides engage fairly and in good faith.
I thus emphasize one final point with respect to process. As I’ve described, I believe the Division’s process is both transparent and fair. But I would advise those in the defense bar not to mistake fairness for weakness.
Recognize that the staff is seeking to move expeditiously, and to reach conclusions and make recommendations within reasonable time periods to uphold our obligations as public servants. At the same time, we are committed to professional courtesy, consideration, and – where we can – flexibility. Deliberate circumvention of the process, however, including tactical tardiness and other games, will not be tolerated. Make no mistake, counsels’ incentives, financial or otherwise, to prolong an investigation (and then complain about how long the investigation took) will be met by steadfast commitment to reasonable and timely resolution.
I will hold my staff, and you, to that standard.
Enforcement Priorities
Now that I’ve laid the foundation of process, let’s move to my priorities for the Enforcement Division, which, again, are informed by the Chairman’s views and our historic emphasis.
First and foremost. The Enforcement Division remains focused on its mission to vigorously enforce federal securities laws in accordance with the Chairman’s focus on returning to the basics, with fairness and a focus on timely resolution of cases. The Division’s dedication to this purpose not only protects investors, but preserves fair, orderly, and efficient markets, and facilitates capital formation – the very mandates of the agency itself. In my time as head of the Division, I can attest that the staff are truly doing good work on behalf of the American people. The office brims with bright, mission-driven lawyers, analysts, and accountants – professionals in every sense of the word – who remain committed to our mission. Fraud in our capital markets persists, and so does my staff as they work to eliminate it.
Put another way – reports that enforcement work at the SEC has been tossed to the wayside are not only greatly exaggerated but flat out wrong. But I will say that I am far more concerned with the quality and impact of the enforcement actions that we bring than with chasing numbers.
And the reality is that I do not have unlimited resources at my disposal. As such, I focus on using the resources we have judiciously – that is, where they can most effectively and fairly be used to protect investors and our capital markets. This entails continuous review and monitoring of our docket to ensure we deploy our resources efficiently and refocus our priorities at the direction of the Commission. Put simply, we have focused and will continue to focus on bringing good cases that further the SEC’s core mission.
Second. A principal focus of our enforcement program is thus to protect investors from the myriad fraud schemes cooked up by bad actors, which Chairman Atkins refers to as the liars, cheats, and thieves. Identifying, rooting out, and remedying scams, particularly those that inflict devastating costs on everyday retail investors, is the cornerstone of what we do. Our work will continue to focus on uncovering and deterring fraud that wipes out American investors’ retirement savings, or fraud that undercuts their progress towards saving for a home, or their kids’ education. And we will make full use of the remedies available to return money to investors harmed by those frauds.
Likewise, we will continue to charge violations of the securities laws for misconduct that clearly undermines market integrity, including accounting fraud, insider trading, wash trading, and market manipulation schemes. This critical work ensures that appropriate market forces, not bad actors, determine the value of securities.
Third, and lastly, I want to spend some time talking about compliance with other provisions of our federal securities laws, such as a public company’s reporting requirements; its obligations to maintain adequate books and records and devise and maintain systems of internal accounting controls; or a broker-dealer or investment adviser’s obligation to adhere to its fiduciary duties and financial responsibility rules. Whether a requirement is in a statute or promulgated using the Commission’s rulemaking authority, enforcement of such rules is necessary to maintain the fairness of our capital markets.
Are violations of these provisions on par with fraud? No, not necessarily. In fact, I am confident that many violations of these provisions should not – and do not – result in enforcement cases by the Commission. But there is a middle ground: where fraud is absent, but compliance has failed in a way that poses risks to investors, risks to the integrity of the market, or yields a benefit to the participant. It is a place that may warrant enforcement action but may also present opportunity. Opportunity for both the Division and those who might be subject to an enforcement action to craft thoughtful resolutions in an appropriate case – resolutions that recognize wrongdoing while rectifying the violation or charting a firmer path toward compliance. Because – at the end of the day – our work in this space is about ensuring participants in our capital markets are providing investors with the necessary information and operating within the guardrails that make our capital markets the envy of the world. Where other divisions can identify, educate, and help people and entities remediate the problem or deficiency, fantastic.
Conclusion
I’ll end with this: in a perfect world, we wouldn’t need a Division of Enforcement because we wouldn’t have violations of our securities laws. But we do not live in a perfect world. Wrongdoing exists. And so long as it does, I am honored to help steer the ship – using the guiding principles I have described, and with careful and thoughtful stewardship of the formidable resources and power the federal government has entrusted to me – on behalf of those that rely on and participate in our capital markets.
Thank you for your time and attention. I look forward to the discussion to follow. Thank you.
