Remarks at Securities Enforcement Forum D.C. 2024

Good afternoon. Thank you to Bruce Carton for the invitation to speak today and for the kind introduction. I appreciate the opportunity to be able to talk to you about the work of the SEC's Division of Enforcement.

As is customary, my remarks today are in my official capacity as Acting Director of the Division of Enforcement, and do not necessarily reflect the views of the Commission, the Commissioners, or other members of the staff.

As you may know, I became Acting Director of Enforcement roughly four weeks ago. But I have been with the SEC for over 21 years, including serving as Deputy Director of Enforcement since Aug. of 2021, and in that and all my prior roles, it's been a privilege to help advance the Division's investor protection mission over the past two decades.

I'd like to take the opportunity today to discuss some of our work over the past fiscal year, which ended September 30th. We won't be releasing Enforcement's numbers until later this month, so I can't discuss those today, but I think you'll see that the numbers reflect another productive year for the Division.

Numbers, of course, only tell one part of the story. They don't capture the full impact of the enforcement actions filed or the remedies obtained, either individually or cumulatively, in terms of investor protection or changing industry behavior.

So, today I'd like to discuss the impact that some of our actions have had throughout the industry, focusing on three areas where we were very active this past fiscal year: (i) our proactive off-channel communications initiative; (ii) whistleblower protection cases; and (iii) cases in which the Commission recognized and credited parties' cooperation with the Division's investigations.

Perhaps no recent Enforcement initiative has gotten more attention than our ongoing off-channel communications initiative, colloquially known as the WhatsApp initiative, to ensure that regulated entities, including broker-dealers, investment advisers, and credit ratings agencies, comply with the recordkeeping requirements of the federal securities laws.[1] Compliance with those requirements is essential to investor protection and well-functioning markets; conversely noncompliance thwarts effective oversight of the industry, harming investors.[2]

In fiscal year 2024, the Commission brought recordkeeping cases resulting in over $600 million in civil penalties against more than 70 firms, including the Commission's first cases charging recordkeeping violations against municipal advisors.[3] Since December 2021, that initiative has resulted in charges against more than 100 firms and over $2 billion in penalties.[4] The firms all admitted that their conduct violated the recordkeeping requirements.

In April of this year, I discussed some of the factors we consider when assessing what penalty to recommend in a particular action.[5]

We consider the size of the firm and the regulated parts of its business to ensure that the penalty is adequate to serve as a deterrent against future violations.

We look at the scope and scale of the violations. How many off-channel communications were there and by how many individuals?

We consider precedent. The SEC has now issued dozens of settled orders in these matters since December 2021. These precedents are part of an individualized determination; but they are not a substitute for it.

We consider a firm's efforts to comply with its recordkeeping obligations and to prevent off-channel communications, focusing, for example, on timely adoption of meaningful technological or other solutions.

We also consider whether a firm self-policed, self-reported, remediated, or took other steps to meaningfully cooperate with our investigation.

As I noted, consideration of those factors has resulted in combined civil penalties of more than $2 billion since 2021. The robust penalties have gotten a lot of attention.

But I think the better take-away from the scale of the initiative, both in terms of the dollar amount of penalties and number of firms charged, is that it has shone a light on how widespread noncompliance was when it came to this practice. And, given how far back in time this practice went, it was not the result of folks working remotely during the pandemic.

And I think the best measure of the success of the initiative is how it has changed industry behavior and spurred proactive compliance by market participants. We're seeing that in the number of firms that are improving their policies and procedures and implementing remedial measures. And we're seeing it in the number of firms that are self-reporting violations.[6] Recognizing those proactive efforts, the Commission has recently resolved charges against several firms with reduced penalties or even no penalties at all.[7] Thanks to those improved efforts at compliance, countless investors will be protected from strengthened oversight of registered entities.

Another area where we know that our message is being heard is when it comes to ensuring that market participants do not impede would-be whistleblowers from contacting the SEC, in violation of the Dodd-Frank whistleblower protection rule.

The SEC's whistleblower program plays a critical role in our ability to effectively detect wrongdoing, protect investors and the marketplace, and hold violators accountable. But that program only works if whistleblowers have unfettered ability to share with the SEC information about possible securities law violations. However, all too often we have seen, for example, confidentiality agreements and employment agreements by various advisory firms and public companies that impede that ability, including by limiting customers' ability to voluntarily contact the SEC[8] or by requiring employees to waive the right to a monetary award for participating in a government investigation.[9] So this past fiscal year, and the year prior, the Commission brought a series of enforcement actions to address widespread violations.[10]

There was a similar series of actions addressing this issue some years back. And I think for a while there was better compliance, but then things slipped and we're back here. So, this time around the Commission authorized what I view to be fittingly robust remedies, including the largest penalty on record for a standalone violation of the whistleblower protection rule.[11] It is my hope that these enforcement actions will have a significant deterrent effect and will lead to greater and sustained proactive compliance. The outlook is promising, judging by the many client alerts about this topic and the frequency with which the issue is discussed on panels at conferences like this.

A few minutes ago, I mentioned the number of firms that are self-reporting violations and taking remedial action in the off-channel communications cases. Of course, those are not the only cases where we've seen market participants self-reporting and otherwise cooperating with our investigations. We have been talking very deliberately about the benefits of cooperation for several years now. At the West Coast iteration of this event, about six months ago, former Director Grewal discussed at length what parties can do to best position themselves when advocating for cooperation credit from the SEC.[12]

I encourage you all to review the speech if you haven't seen it. The speech distilled the message we have been very clearly conveying for some time: "work with us and we'll work with you."

In fiscal year 2024, we saw those efforts bear a lot of fruit, with market participants really stepping up their self-policing, self-reporting, remediation, and other cooperation. We saw this throughout the securities industry, in cases involving public companies,[13] investment advisers,[14] broker-dealers,[15] and individuals,[16] and in matters involving a range of violations, such as material misstatements,[17] fraud[18], recordkeeping violations,[19] and controls failures related to cybersecurity.[20]

That has continued in the new fiscal year. Just last week the Commission resolved several actions with JPMorgan and acknowledged that firm's self-reports, remedial measures, and voluntary payments of over $100 million to harmed investors.[21]

It benefits everyone when market participants step up like this. It benefits the firms who will likely resolve an SEC investigation more quickly and with reduced sanctions; it benefits the Division to resolve cases more quickly and efficiently so we can focus resources elsewhere; but most importantly, it benefits investors who are no longer at risk from the conduct at issue and who are protected from improved proactive compliance efforts going forward.

It has therefore been encouraging to see market participants respond to our emphasis on cooperation over the past several years.

There has been a bit of a common refrain from the defense bar, likely including at this conference, that folks don't know what to do to get cooperation credit or what the benefit is. Now, I recognize that we don't have a formal policy that guarantees certain outcomes based on certain conduct. But based on what we're seeing at the Division, our message is clearly being heard, and market participants and their counsel - at least those who are paying attention - are responding.

***

And that, of course, is a major purpose behind our enforcement actions and remedies. To be sure, an important part of it is to hold bad actors accountable. But a crucial purpose is to deter future violations and promote compliance throughout the industry. And I believe our enforcement actions are doing that, as I have discussed. Our recordkeeping initiative, whistleblower protections cases, and the cases where we message the benefits of cooperation are just some examples of where we are seeing this, but every enforcement action the Commission brings sends ripples, some bigger than others, of deterrence and compliance across the industry.

So, while I know that those top-line numbers will get a lot of attention when we release our fiscal year 2024 report later this month, I will also be thinking about the individual and cumulative impact of those enforcement actions across the securities industry and what it all means for investors.

And with that, I am happy to discuss some additional topics in a more informal fireside format.

Thank you.

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