JANUARY 10, 2024. Grubir Grewal, the Director of the Securities and Exchange Commission’s Division of Enforcement recently reflected on his efforts related to enforcement of securities violations since he stepped into the position in 2021, and his comments to The Wall Street Journal are illuminating. Since becoming the division chief, the agency has brought a record number of actions. In the 2023 fiscal year alone, the SEC carried out 784 enforcement actions, garnering $5 billion in financial remedies. This follows a record-breaking FY 2022, which saw $6.44 billion in financial remedies.
One of Grewal’s objectives has been to use monetary penalties as both a strong deterrent for repeat behavior and as an incentive to cooperate with the SEC. The higher the penalty, the higher the risk to the company when caught engaging in unlawful behavior. The alleged benefits of skirting regulations and cheating investors and taxpayers are negated by that consequence. As a part of this initiative, Grewal has cracked down on companies for failing to maintain and preserve electronic communications. The SEC faced obstacles in their investigations due to the lack of documents produced by those being investigated. They would often find off-channel communications for matters that implicated companies in wrongdoing. Since December 2021, the SEC has imposed more than $1.5 million against 40 firms for such practices.
On the matter of electronic records enforcement, Grewal said, “I’d call that impacting positive behavior in the markets. And we’re not looking for communications about people making lunch plans or dinner plans or after-work drink plans. We’re looking for communications related to the business, and records that have to be kept. So, if there is misconduct, we are able to piece together what happened, and folks are unable to evade those retention requirements and evade us by using ephemeral messaging or off-channel communications.”
Grewal vowed to keep pursuing offenders, putting even more pressure on those who continue to fail to comply. Those who do not address faulty policies may now face even higher fines and more severe penalties than their first offense. The SEC chair, Gary Gensler, supports this effort, encouraging the use of all tools to ensure companies are held accountable.
When asked about suggestions for compliance officers, who often find themselves under immense pressure and limited resources, Grewal had this to say:
It comes down to making sure that the policies and procedures you have in place are bespoke to your enterprise, that they’re not sort of off-the-shelf, check-the-box-type policies and procedures. That you’re educating yourselves on the risk areas by looking at what’s going on, whether it’s in our orders or another regulator’s orders. That you’re engaging with people across your business lines to understand the risks that you have. That you’re executing, and then you’re making sure that the message is getting through to the folks that work in your enterprise, and that the people who are at the top make sure that they’re setting the right tone at the top. If you do that—education, engagement, execution, and enforcement—that’s the right path for compliance.
Securities fraud whistleblowers, take note: the SEC needs your help to strengthen its enforcement mission. The SEC rewards original information in cases where the monetary sanctions exceed $1 million. Last year, the SEC awarded its highest-ever whistleblower award, $279 million.
If you would like to report securities, commodities, or banking fraud, you can contact attorneys at Tycko & Zavareei LLP. Eva Gunasekera and Renée Brooker are former officials of the United States Department of Justice and prosecuted whistleblower cases under the False Claims Act. Renée served as Assistant Director at the United States Department of Justice, the office that supervises False Claims Act cases in all 94 United States District Courts. Eva was the Senior Counsel for Health Care Fraud. Eva and Renée now represent whistleblowers. For a free consultation, you can contact Renée at [email protected] (tel.: 202-417-3664) or contact Eva Gunasekera at [email protected]. You can also go to Tycko & Zavareei LLP’s website for whistleblowers to learn more at www.fraudfighters.net.