Yesterday, as part of the annual “SEC Speaks” program, the leadership of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement publicly discussed the enforcement priorities under new Chairman Paul S. Atkins. A panel of SEC enforcement personnel, including Acting Director of Enforcement Samuel Waldon and others, shed light on the current focus of enforcement activity under the SEC’s new leadership and what the Division of Enforcement expects from companies and individuals involved in SEC investigations.

Focus on Traditional Enforcement Areas and Investor Harm

A theme among the panelists was that, despite some media reports to the contrary, the Division of Enforcement will continue its work under new leadership to enforce the federal securities laws and protect investors. Specifically, the panel explained that the SEC will continue to focus on traditional areas of enforcement, including (1) insider trading, (2) accounting and disclosure fraud, (3) fraudulent securities offerings, and (4) breaches of fiduciary duty by investment advisers.

Additionally, within those broad categories, the panel noted that enforcement staff will focus their resources on matters involving harm to investors, especially retail investors. The panel also emphasized the importance of holding individuals – not just companies – accountable for violations.

Specialized Enforcement Units

The panel discussed the current structure of the Division of Enforcement’s specialized units, which conduct investigations in particular subject matter areas. Currently, those units include (1) the Asset Management Unit, which focuses on investment advisers and investment companies; (2) the Cyber and Emerging Technologies Unit, which focuses on violations around cyber issues and new technologies, including artificial intelligence; (3) the Complex Financial Instruments Unit, which investigates matters involving complex financial products and sophisticated market participants; (4) the Market Abuse Unit, which focuses on insider trading and market manipulation; (5) the Public Finance Abuse Unit, which investigates potential fraud around municipal securities; and (6) the Office of the Whistleblower, which processes whistleblower complaints and claims for award after the SEC recovers money from matters assisted by whistleblowers.

The panel indicated that those units will continue with investigations and enforcement actions in their areas of expertise. Notably, consistent with the U.S. Department of Justice’s recent deemphasis on the Foreign Corrupt Practices Act (FCPA), the panel did not mention the FCPA Unit, whose leader recently retired.

Importance of Self-Reporting, Cooperation and Remediation

The panel also emphasized the importance of (1) self-reporting violations of the federal securities laws to the SEC, (2) cooperation with SEC staff during inquiries and investigations, and (3) remediation by companies and individuals. The panel explained that, while taking these actions would not guarantee a declination, they may lead to more favorable resolutions of enforcement actions or, in some cases, no enforcement action at all.

Increased Receptiveness to Wells Meetings with the Director

Toward the end of an investigation, SEC enforcement staff often issue a “Wells Notice,” which is a formal notice that the staff intends to recommend an enforcement action to the Commissioners of the SEC. Upon receiving a Wells Notice, counsel for the recipient often will make a “Wells Submission” to the staff, explaining why counsel believes an enforcement action is not warranted. Additionally, counsel often request a “Wells Meeting” with leadership of the Division of Enforcement.

In recent years, requests for Wells Meetings were sometimes granted and sometimes not; and, when granted, the meetings might involve the Director of Enforcement or, alternatively, a supervisor below the Director. The panel, however, indicated that the staff typically would, if requested, grant a Wells Meeting with the Director of Enforcement, and that the Director and staff would be open to a constructive dialogue regarding the merits of each matter.

Takeaways

The panel provided several timely reminders for issuers, SEC registrants, and others who conduct business in the securities space:

First, the SEC’s Division of Enforcement remains active and committed to its traditional enforcement areas. In particular, the SEC will continue to police, among other things, material misrepresentations by issuers and breaches of duty by registered investment advisers (RIAs). As to the latter, the panel specifically noted that many enforcement referrals involving RIAs originate with mandatory, periodic examinations by SEC staff. So, RIAs should ensure that their compliance functions are effective before an examination occurs.

Second, self-reporting, cooperation, and remediation are of critical importance. When a company becomes aware of a possible violation – whether from a hotline call, a whistleblower complaint, or otherwise – the company should investigate the matter, assess the facts, and determine whether self-reporting or other remedial action is appropriate. Proactively addressing matters may lead to more favorable resolutions with the SEC or persuade the staff that no enforcement action is needed because the company already addressed and remediated the issue.

Third, if a company or individual becomes involved in an SEC investigation, current leadership of the Division of Enforcement seems open to a constructive, good faith dialogue before an enforcement action is filed. That dialogue should benefit all parties. Additionally, for a putative defendant, it is important to retain counsel knowledgeable about how the SEC staff assesses cases at the Wells stage before making a final charging recommendation.