Commissioner Aguilar Calls for More Clarity in SEC Enforcement Orders (with Lofchie Comment and Lofchie YouTube Selection)

In a public statement, SEC Commissioner Luis A. Aguilar called for "sufficiently detailed facts" in orders by the SEC ("Commission Orders") to ensure that "there is no doubt as to why the Commission brought an enforcement action, why the respondent deserved to be sanctioned, and why the Commission imposed the sanctions it did." Specifically, Commissioner Aguilar requested greater clarity concerning federal securities law violations by Chief Compliance Officers ("CCOs") and the resulting enforcement actions. More clarity, he said, will allow the "larger CCO community" to "take notice and try to learn as much as possible about the behavior that resulted in the Commission's enforcement action."

Commissioner Aguilar noted that Commission Orders currently "need only include the basic facts necessary to support the charges alleged," and that the facts behind the enforcement actions are "oftentimes negotiated" during settlement.

Commissioner Aguilar concluded by saying that "clear guidance" in Commission Orders enables the SEC to "send the right message, helps maximize the deterrent effect of enforcement actions, and, just as important, informs others as to future behavior."

Lofchie Comment: There is an inherent tension within any enforcement action. On the one hand, terms are subject to negotiations that are limited to the SEC and the party who is accused of wrongdoing; on the other, enforcement actions help to guide the conduct of those who want to understand the acceptable limits of behavior. In some cases, the accused party may wish to soften the effect of the statement of its wrongdoing in order to minimize reputational damage. Thus, it might be willing to bargain for a less damaging description of the facts in exchange for a settlement. In other cases, a party may be indifferent to what is said, instances in which its only interest in settlement negotiation is to reduce the amount of the direct sanctions against it. In those cases, the SEC enforcement staff may have significant freedom to describe the case as it likes. This may result in the coloring of the facts by enforcement staff to justify the sanction or to change the law through a statement of the reasons for bringing the enforcement action. (Such enforcement actions must be approved by the SEC; they do not go through the same review process as actual rulemakings). In short, the statement of facts in an enforcement action is an uncertain guide to what actually happened.

While it will never be possible to make silk purses from statements of facts in enforcement actions, Commissioner Aguilar does a public service by calling attention to their significance.

Lofchie YouTube Selection: Not Just "Based" on a True Story.

See: Commissioner Aguilar's Statement on the Importance of Clarity in Commission Orders.
Related news: SEC Chair White Outlines Enforcement Priorities, Says SEC Isn't Chasing CCOs (July 14, 2015); Commissioner Aguilar Discusses Role of Chief Compliance Officer (with Lofchie Comment) (June 30, 2015); House Committee on Financial Services Schedules Hearing Regarding the SEC Division of Enforcement (March 12, 2015).