Top enforcement chiefs from the SEC, CFTC, DOJ and FINRA participated on a panel discussion of current enforcement trends and issues during the Current Enforcement Issues Panel discussion as part of this week’s SIFMA Compliance and Legal Division annual seminar. The agenda at the SEC dominated much of the discussion.
SEC Enforcement Director Andrew Ceresney divided the enforcement focus of the agency into three groups: complex products, such as structured notes; market structure cases, such as those involving dark pools and high frequency trading; and failures of supervision. In the supervisory area, Ceresney commented that although the SEC has not hesitated to name compliance officers in enforcement actions, the SEC has actually only done so in a fairly narrow group of cases. Ceresney said that as a matter of course compliance officers are not targets. Rather, the SEC has brought cases against compliance officers when there was evidence that they misled regulators, where they directly participated in the misconduct at issue, or where there was a total lapse of an officer “doing his job.” The actual number of these cases was small relative to the overall enforcement efforts of the SEC. Neither Ceresney nor Executive VP of FINRA, Enforcement, J. Bradley Bennett, thought that these cases would deter industry personnel from stepping into compliance roles. That said, both Ceresney and Bennett noted that it was not uncommon for compliance officers, and even securities industry lawyers, to be called by their respective staffs as witnesses to provide testimony as part of enforcement cases. Both agreed that compliance officers are often key fact witnesses of misconduct and lapses; they suggested that compliance officers could expect to be called to give testimony in the normal course.
Concerns over “regulator pile on” involving the same alleged misconduct were also raised. There was no disagreement that this can occur, especially when foreign regulators are involved, as much as regulators may otherwise try to coordinate their efforts. DOJ Deputy Assistant Attorney General Sung-Hee Suh noted that although one agency cannot force another to accept less in a settlement, the DOJ does take into account payments made to others as part of DOJ resolution of cases.
The recent attacks on the constitutionality of agency administrative proceedings were addressed head on. CFTC Enforcement Director, Aitan Goelman, opined that it was “legal malpractice” for defense counsel not to raise a constitutional challenge to administrative enforcement proceedings in the wake of the legal developments in this area. He did not say whether the challenge is better made in court or in the administrative proceeding, but both options were discussed. Ceresney defended the SEC’s use of administrative proceedings as appropriate because he believes that cases there can be decided more quickly than in federal court and that experienced SEC ALJs are selected to hear those cases. Ceresney said that despite the constitutional challenges, the SEC has continued to bring administrative proceedings. He made similar comments yesterday at the annual Mutual Funds and Investment Management Conference, but did not mention his CFTC colleague’s comments at the SIFMA conference. Ceresney did not address, at either conference, the recent ruling by United States District Court Judge Leigh Martin May that there is nationwide venue to raise such challenges in any federal district court, including in the Northern District of Georgia where such challenges have succeeded.