Gensler and Key Principles
Chair Gensler outlined a series of principles for market professionals and others to consider in comments made at the Securities Enforcement Forum this week (here). The points covered by Mr. Gensler are not new or novel. They are worth considering however as everyone rushes off to the next meeting.
1) Economic reality: Activities should be “subject to consistent regulation” the Chair declared. It is important that the actual substance of the regulation, case or matter be carefully considered. And, when a lawyer, accountant or other professional is consulted to determine if the transaction is “over the line,” perhaps it is just time to walk it back a bit.
2) Accountability: The agency plans to use its full arsenal of remedies when resolving matters. This includes admissions when appropriate. In this regard Mr. Gensler stated: “When it comes to accountability, few acts rival admission of misconduct by wrongdoers.”
3) High-Impact Cases: There are far too many fraudsters, penny stock scammers, Ponzi schemes and similar matters Mr. Gensler has learned in his first six months on the job. Nevertheless, the agency will “continue to pursue misconduct whenever” it is found. High-impact matters are important and will be brought – they help focus gatekeepers such as attorneys and accountants and they send a message.
4) Process: Timeliness and moving forward is important. While the defense bar may decide to burn the clock, the staff is being asked to reduce the number of meetings and move forward to conserve resources – employ a kind of “rocket docket.”
5) Other Law Enforcement Agencies: There is significant benefit from working with other agencies. One example is the DOJ announcement last week regarding proposed changes. Those include focusing on corporate history, strengthening guidance on items such as cooperation credit and evaluating if a non-prosecution/deferred prosecution agreement is appropriate for recidivists.
6) Sourcing cases. Other law enforcement agencies and self-regulatory organizations are great sources of tips. Another is self-reporting. Here Mr. Gensler noted that if a firm “messes up” it should come in and chat. All things being equal, the company will get a better result. And, cooperation means “more than meeting your legal requirements . . .” it means “taking steps that enhance our investigation, allow us to move quickly and, if appropriate help us to identify additional misconduct,” Mr. Gensler noted.
7) Position of trust: Here Mr. Gensler focused on the professionals – attorneys, bankers, investment advisers and others. All have clients; the SEC has clients – the public. All the professionals should think about the their responsibilities to the clients, the public – a point the Chair thinks of each morning.
None of the points discussed are new; all have been discussed before. Overall, however, they are thoughtful as well as useful – well worth considering, particularly the overall message.