By Amy Leisinger, J.D.
In remarks before Practising Law Institute’s white-collar crime conference, SEC Enforcement Co-Director Steven Peikin discussed the need for more than quantitative metrics when considering the effectiveness of the agency’s enforcement activities and for a careful balance of monetary and non-monetary sanctions to achieve the SEC goals. Statistics do not provide a full picture of the quality of enforcement efforts, he noted, and the Division strives to stay focused on whether investors are protected and individuals are held accountable for misconduct while keeping pace with technological changes and effectively allocating resources.
Non-monetary sanctions. According to Peikin, while the Enforcement Division does seek some form of monetary relief in most of its actions, non-monetary relief is also important to achieving the Commission’s goals. The focus must be on punishing bad actors, restoring money to investors, achieving deterrence, and putting protections in place going forward, he explained. The most effective forms of equitable relief are undertakings requiring a defendant or respondent to take affirmative steps to come into compliance and injunctions and bars prohibiting an individual from engaging in future conduct, the co-director stated.
Undertakings make it possible to push change in a company’s processes that will serve the investors’ interests, Peikin opined. For example, he cited the recent action against Elon Musk in which Musk and Tesla agreed to a comprehensive set of undertakings, including, among other things, Musk’s resignation, the addition of two independent directors to Tesla’s board, and the adoption mandatory controls and procedures to oversee Musk’s public communications about the company. Undertakings are designed to target and address specific risks, Peikin explained.
Monetary sanctions. According to Peikin, monetary penalties are one of the primary ways that the Enforcement Division can incentivize regulated entities to remain in compliance with the SEC’s rules. However, he noted, the assessment of penalties requires careful balancing of many factors including the circumstances and nature of the misconduct. Enforcement staff also considers remedial steps taken by and self-reporting efforts of defendants and respondents, as well as the extent of cooperation with the Commission. Penalties serve a strong deterrent purpose, he said, but not every case warrants a penalty, particularly when there have been proactive remediation and/or cooperative efforts.
“What we do not do is assess large penalties simply for the sake of counting them up at the end of the year,” Peikin stressed.
While imposition of civil monetary penalties requires a balancing of factors, disgorgement is handled differently, the co-director explained. Even if cooperative and engaged in remedial efforts, a defendant or respondent should not be allowed to retain ill-gotten gains. Disgorgement is often the surest way to restore investors’ losses, Peikin explained, but the Supreme Court ruling in Kokesh v. SEC that the proceeds of misconduct obtained outside the statute of limitations are not subject to disgorgement has changed the game. Kokesh prevented the Commission from seeking approximately $800 million in potential disgorgement, he noted.