In a November 2016 speech at New York University Law School's Program on Corporate Compliance and Enforcement, outgoing SEC Chair Mary Jo White addressed the SEC's recent enforcement strategies. [In part, the speech appears to represent a response to those who have asserted that the SEC has not proceeded aggressively enough in this area in recent years.] In this article, we summarize a few points that may be of particular relevance to the structured products industry. A full copy of the speech may be found at the following link: (https://www.sec.gov/news/speech/chair-whitespeech-new-york-university-111816.html) Enforcement Agenda. Ms. White emphasized the "bold and unrelenting" enforcement agenda that she pursued. She pointed out the SEC's record of enforcement actions, monetary remedies, and the restitution of funds to investors who inappropriately lost money. Use of Data. Ms. White discussed the SEC's increased use of data analytics to detect and investigate misconduct and described the SEC's growing number of in-house analytical tools to examine data. She summarized how these tools supported cases against different individuals and entities. (See also our article above, "SEC Commissioner References Recent RevCon Settlement in Big Data Speech.")
Whistleblowers. Ms. White summarized how whistleblowers have emerged as key sources of significant cases that the SEC has brought. Ms. White expects the SEC's whistleblower program to increase in importance in coming years, and the SEC has attempted to "change corporate attitudes" and to enhance the protection afforded to whistleblowers.
Proceeding Against Individuals. While not referencing any specific cases, Ms. White noted: "Holding individuals liable for wrongdoing is a core pillar of any strong enforcement program. A company, after all, can only act through its employees, and to have a strong deterrent effect on market participants, it is absolutely critical that responsible individuals be charged and that we pursue the evidence as high as it can take us...the Commission's actions over the past three plus years show the priority that we are placing on establishing individual liability."
However, Ms. White also noted that in certain areas, such as improper sales and disclosure practices of complex products at major financial institutions, it has been much more difficult to hold senior executives responsible; for example, those senior officers are often not directly involved in the relevant activities. Ms. White noted the principles behind the laws of certain non-U.S. jurisdictions, in particular the U.K.'s "Senior Manager Regime"; this statute is designed to incentivize executives and other senior managers to take greater responsibility for the actions of the employees that they supervise. This regulation makes it easier for the authorities to hold more individuals accountable for offenses that occur in areas of the executives' responsibilities, even if the executive is not involved in the misconduct, does not know about it, and does not directly supervise the offending employees. This regulatory framework can hold these executives liable if they did not take "reasonable steps" to prevent the relevant misconduct. Ms. White encouraged the United States to follow developments under this type of statute and what it may teach about potential changes to the U.S. regulatory regime to encourage better compliance with applicable laws.