The leadership change, for whatever length, does provide a good place for financial advisors to consider the past enforcement trends from the agency. These trends can help advisors think through where their own compliance efforts may need tightening up.
The SEC may be making news lately for its crackdown on cryptocurrency, but the real story may be how its agenda has been changing concerning enforcement actions. Here are a few things financial advisors should consider.
In early October of 2024, the SEC announced a major enforcement action against several firms for alleged market manipulation.[1] The fraud charges involved allegedly selling crypto assets as security and inducing purchases by creating an illusion of trading activity. Those charges draw in several issues the SEC has been working on over the years concerning crypto.
While a crackdown on crypto may seem sexy, the real news is that by the end of the month, the enforcement department will be under new leadership. “Gurbir S. Grewal, Director of the Division of Enforcement, will depart the agency, effective Oct. 11, 2024.”[2] A leadership change is an opportunity to review past enforcement trends. Given that Grewel will depart before the end of the Biden Administration, his replacement Sanjay Wadhwa. Unlike the Department of Labor, where various Assistant Secretary positions require approval of the Senate, the heads of divisions at the SEC do not. That means the interim director could serve for a period of time as short as three months or could be named by the incoming administration as the permanent director. Some Washington watchers think that when leadership is filled by an interim head, Sanjay Wadhwa, there could be a mild slowdown in enforcement. Wadhwa has spent most of his career in various roles as an attorney at the SEC since joining that agency in 2003.[3]
The leadership change, for whatever length, does provide a good place for financial advisors to consider the past enforcement trends from the agency. These trends can help advisors think through where their own compliance efforts may need tightening up.
According to PWC, “issuer reporting, audit, and accounting cases drove the significant increase in enforcement actions” between 2021 and 2023.[4] Part of that increased scrutiny in reporting was due in part to a new data analytics system the SEC began using, which assisted the enforcement division in finding potential fraud. Another significant trend in enforcement, according to PWC, is a turn towards including individuals among enforcement actions. That means agency action now includes a firm as well as key individuals at the firm. As the departing director said “we are also focused on the overall quality control environment at that firm and the effect that the environment has on the overall audit practice.”[5] That includes new kinds of cases, including chief information officers into the mix of key professionals often the target of enforcement actions (along with auditors and compliance officers). [6]
Some agency watchers noted that 2024 has also found the agency stumbling over a few litigation setbacks.[7] Those include the Supreme Court decision in SEC v. Jarkesy,[8] wherein the agency can no longer rely on its agency courts to hear its agency enforcement actions.[9] And more could be coming depending on how the Supreme Court rules in the case of Facebook v. Amalgamated Bank involving fraud and untrue statements.[10] Meanwhile in a perhaps overly optimistic mood, the SEC, filed a handful of new cases based in fraud in the fall of 2024.[11] Some say this wave of enforcement actions is intended to send a message to investment advisors that would tighten what constitutes untrue statements under its market rule.[12]
[1] https://www.sec.gov/newsroom/press-releases/2024-166
[2] https://www.sec.gov/newsroom/press-releases/2024-162
[3] https://www.pli.edu/faculty/sanjay-wadhwa-i351940
[4] https://viewpoint.pwc.com/dt/us/en/pwc/in_depths/2024/id2024/id202403.html
[5] https://viewpoint.pwc.com/dt/us/en/pwc/in_depths/2024/id2024/id202403.html
[6] See pdf in link https://www.jonesday.com/en/insights/2024/05/capital-markets-professional-perspective--sec-enforcement-2024-a-midyear-review-bloomberg-law
[7] https://www.gibsondunn.com/securities-enforcement-2024-mid-year-update
[8] https://www.bcgbenefits.com/blog/administrative-agency-authority
[9] https://www.bcgbenefits.com/blog/loper-bright
[10] https://www.bcgbenefits.com/blog/eyes-on-the-court
[11] https://www.sec.gov/newsroom/press-releases/2024-121
[12] https://www.sec.gov/newsroom/press-releases/2024-121
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
get xpress proposal
