Securities Litigation

In remarks this week at the SEC Speaks conference, new SEC Enforcement Director Gurbir Grewal said he’s bringing back admissions in SEC settled actions to help spur accountability.  Most SEC actions are settled on a “neither admit nor deny” basis.

“When it comes to accountability, few things rival the magnitude of wrongdoers admitting that they broke the law, and so, in an era of diminished trust, we will, in appropriate circumstances, be requiring admissions in cases where heightened accountability and acceptance of responsibility are in the public interest.”  Grewal said, “Admissions, given their attention-getting nature, also serve as a clarion call to other market participants to stamp out and self-report the misconduct to the extent it is occurring in their firm.”

Recall that the settlement admissions policy was widely touted in 2013 by then-Chair Mary Jo White for cases involving:  (i) “Egregious conduct”; (ii) “Large numbers of investors harmed”; (iii) “Significant risk to markets or investors”; (iv) “Particular future threat to investors or markets”; (v) “Unlawful obstruction of Commission’s processes.”  And, as during White’s tenure, the current Enforcement Division said it would seek admissions only in cases involving “egregious misconduct.”  The “admissions” policy was widely viewed as having been shelved after White left the Commission.

Despite the fanfare, Northern Illinois University Professor David Rosenfeld found that “even using the most generous measure, the SEC has obtained admissions in roughly 2.7% of the new standalone matters it has brought in the three full years that the policy has been in place, from less than 2% of the defendants and respondents it sued in those cases.”  D. Rosenfeld, Admission in SEC Enforcement Cases:  The Revolution that Wasn’t, 103 Iowa L. Rev. 113, 131 (2017).

Indeed, some of those earlier “admissions” cases seemed far from egregious.  For example, the Scottrade settlement in 2014 involved an old coding mistake leading to “blue-sheet” trade reporting errors.  I discussed it here: 2014/04/17/secs-recent-admissions-case-muddies-standard/

Director Grewal’s remarks also revived Chair White’s focus on “gatekeepers.”  Both Grewal and White are former Department of Justice prosecutors brought in to run SEC’s Enforcement program.

Director Grewal’s remarks are here:  https://www.sec.gov/news/speech/grewal-sec-speaks-101321

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 35 years of experience representing financial institutions in litigation, regulatory, and compliance matters. See attorney profile.