In remarks before the Securities Enforcement Forum, SEC Chair Gary Gensler echoed first SEC Chair Joseph Kennedy's assertion that the SEC "will make war without quarter on any who sell securities by fraud or misrepresentation."

Mr. Gensler outlined several principles that he shared with the Division of Enforcement to guide its assessments of misconduct under the federal securities laws:

  • focusing on substance over form, and the "economic realities" of the transaction or conduct in question;
  • focusing on individual "accountability" and aggressively seeking tougher remedies to deter future misconduct, including admissions of wrongdoing, and also charging those in "positions of trust" as the "first lines of defense" against misconduct, calling on traditional gatekeepers (e., accountants, auditors, advisers, lawyers and bankers) to do more in helping those they advise to uphold the law;
  • focusing on bringing "high-impact cases," whose impact and message may change the behavior of market participants, and doing so in a timely manner, as "justice delayed is justice denied"; and
  • collaborating closely with other federal agencies, and particularly the DOJ, (Deputy Attorney General Lisa O. Monaco recently announcedan intention to more critically assess corporate cooperation and the conduct of individual actors, as well as whether non-prosecution or deferred prosecution agreements are sufficient punishment for repeat offenders.)

In commenting on the market's traditional gatekeepers, Mr. Gensler also mentioned the observations of former Supreme Court Justice and SEC Chair William O. Douglas that "Service to the client has been the slogan of [the legal] profession. And it has been observed so religiously that service to the public interest has been sadly neglected."

Commentary

Tough talk is the norm at the outset of a new chair's tenure. Time will tell if it fades away, as it often does, or if we someday look back on it as we do Chairman Levitt's "Numbers Game" speech, which previewed sweeping changes and landmark enforcement actions by the agency and its staff.

Primary Sources

  1. SEC Speech, Gary Gensler: Prepared Remarks At the Securities Enforcement Forum

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