September 20, 2021

Volume XI, Number 263

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September 17, 2021

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SEC Commissioner’s Public Comments May Signal Stiffer Corporate Stronger Misconduct Penalties on the Horizon

Earlier this week at a talk before the Council of Institutional Investors, U.S. Securities and Exchange (“SEC”) Commissioner, Caroline Crenshaw, argued that the enforcement must play a “central role” with regulators and require stiffer penalties against corporate wrongdoers.

According to Crenshaw, “a strong enforcement program incentivizes compliance with the securities laws, and enforcement helps to promote a market that inspires investor confidence, creating a level playing field for market participants.” This is a view shared by “Commissioners on both sides of the political aisle.” To her disappointment, Crenshaw said Commissioners “have had different views about when corporate penalties further those goals.” 

“It is clear to me that the Commission has historically placed too much emphasis on factors beyond the actual misconduct when imposing corporate penalties—including whether the corporation’s shareholders benefited from the misconduct, or whether they will be harmed by the assessment of a penalty. This approach is fundamentally flawed.” Crenshaw cautioned that this approach could even “allow companies to profit from fraud as it unnecessarily limits the Commission’s ability to craft appropriately tailored penalties that more effectively deter misconduct.”

“If we are going to confront the novel issues today’s markets present, and deter even more complicated and hard to detect fraud, we must revisit our approach,” Crenshaw said. In particular, Crenshaw recommended stronger corporate penalties, more aptly tied to the “egregiousness of the actual misconduct,” and “ensuring that the violator pays the price.” According to Crenshaw, “If the penalties are sufficiently high to motivate the company to remediate problems, strengthen internal controls, clarify lines of responsibility and prioritize individual accountability, then those are all changes that likely lead to better future outcomes and higher profits for shareholders.” 

Although Crenshaw clarified that her remarks were not made on behalf of her fellow commissioners or the agency, they may signal that stronger enforcement of corporate penalties are on the horizon. Crenshaw’s statements seem to align with the principles of President Joe Biden’s SEC Chairman nomination, Gary Gensler, who has a reputation as a forceful regulator. 

Stay tuned for updates on this and other securities enforcement matters.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume XI, Number 71
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About this Author

Melissa S. Ho Shareholder Phoenix Antitrust, Antitrust - Health Care Compliance, Fraud and Abuse, Stark, Financial and Securities Litigation, Financial Technology, Regulation Government Investigations, Health Care Litigation
Shareholder

Melissa Ho is a trial attorney with a detailed understanding of government regulations and business litigation. A former prosecutor, she is sympathetic to the disruption and chaos a government inquiry and criminal investigation can cause. 

Melissa defends individual clients against a wide variety of criminal allegations, including health care fraud, qui tam, RICO violations, bank fraud, real estate fraud, mortgage fraud, foreign corrupt practices, securities fraud, water and air quality violations, government corruption, procurement and public fraud, professional misconduct, civil...

602-650-2028
Andrew T. Fox Phoenix Polsinelli Government Investigations Labor and Employment Commercial Litigation Litigation and Dispute Resolution
Associate

As a member of Polsinelli’s Government Investigations practice, Andrew assists clients in all aspects of white collar criminal defense and internal corporate investigations. Working to understand each client’s unique situation, he helps guide clients through government inquiries and provides counsel that aligns to their business strategies. Andrew has experience drafting briefs, memoranda and responding to discovery requests.

Prior to joining Polsinelli, Andrew served as a law clerk to The Honorable Judge Douglas L. Rayes on the United States District Court for the District of...

602-650-2014
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