On November 18, 2016, four days after announcing that she would step down at the end of the Obama administration, Securities and Exchange Commission (“SEC”) Chair Mary Jo White recapped changes in SEC enforcement during her tenure and recommended enhancing the Commission’s ability to combat white collar crime by creating new options for enforcement against senior executives and increasing the penalties that the Commission can assess. SEC Chair Mary Jo White, “A New Model for SEC Enforcement,” Nov. 18, 2016,
https://www.sec.gov/news/speech/chair-white-speech-new-york-university-111816.html. Although Chair White made no mention of the recent presidential election, it looms large. Indeed, while there is a populist aspect to her calls for greater enforcement, her recommendations also stand in tension with the new administration’s stated goal of downscaling regulation.
Before speaking of potential future changes, Chair White recounted certain key changes in the SEC’s approach to enforcement during her time at the SEC of which she was particularly proud. She explained that under her watch the SEC has shifted toward conducting investigations with a greater focus on potential litigation and with a greater deterrent effect. This shift in focus, she stressed, has been influenced by changes in all aspects of investigations. With respect to how investigations are initiated, for instance, she praised both the SEC’s expanded use of data analytics to identify and investigate misconduct and the success of the SEC’s whistleblower program. And with respect to how investigations are closed, she stressed the SEC’s increased efforts to hold individuals — and not just corporations — accountable for alleged wrongdoing, as well as the SEC’s still-developing policy of requiring admissions in certain types of cases. As examples of the SEC’s successes, she highlighted certain areas — such as private equity and market structure cases — where she believed recent enforcement changes had a particularly significant deterrent impact.
Notwithstanding her view that the SEC’s Enforcement Division has had substantial success under her tenure, Chair White recommended specific ways to promote still stronger white collar enforcement in the future.
First, Chair White recommended expanding the legal bases for holding senior executives accountable for misconduct that occurs at their companies. Chair White favorably described the United Kingdom’s new “Senior Manager Regime” which allows UK authorities to hold executives accountable for offenses that fall under their authority, even if the executive is not involved in the misconduct, does not know about the misconduct, and does not directly supervise the culpable employee(s). Chair White also pointed to the possibility of increased use of deferred compensation programs, which can ensure that companies themselves have the ability to police wrongdoing. For example, she suggested that if wrongdoing occurred at an institution before an executive’s deferred compensation vested, the unpaid compensation could be used to pay a portion of any civil or criminal fine later imposed on the institution.
Second, Chair White also called for increased penalty authority that would allow the SEC to assess penalties based on the amount of investors’ losses. While the SEC’s penalty powers have increased substantially over the years, and are often negotiated rather than litigated, Chair White urged that still more power should be vested in the SEC.
Third, Chair White urged that certain core SEC enforcement tools currently under threat from Congress and the defense bar be preserved. Specifically, she noted that proposed amendments to the Electronic Communications Privacy Act would make it impossible for the SEC to seek electronic communications from internet service providers, because it would require a criminal warrant. While acknowledging privacy interests motivating the amendments, Chair White stressed the need for the SEC to have broad powers to investigate covertly, much like a criminal enforcement agency. Separately, she once again embraced the SEC’s use of administrative proceedings to litigate cases — suggesting that in her view their ability to help protect investors outweighed any potential concerns from defendants.
Given the pending changes in presidential administrations, it is highly uncertain whether Chair White’s recommendations will be adopted, or indeed whether certain changes implemented by Chair White will be rolled back. Regardless, Chair White is undoubtedly seeking to leave the SEC in as strong an enforcement position as possible before she steps down as Chair.
