SEC Commissioner Gallagher Speech on Corporate Penalties

SEC Commissioner Gallagher delivered a speech at Columbia Law School focusing on corporate penalties in enforcement actions, which he described as a "vexing" issue for the SEC. He referenced the recent settlement from the London Whale case, which cost JPMorgan $920 million. He explained further that the money for this penalty comes not from the bank, but from the shareholders who were presumably already the victims of the events and were now "victimized" again by the settlement.

The SEC has been sharply divided on the appropriateness of penalizing public companies, Commissioner Gallagher explained, noting that imposing penalties without due consideration of shareholders was an inappropriate exercise of the discretion of the SEC. In 2006, the SEC released a joint policy statement entitled, "Penalties Statement," which, according to Commissioner Gallagher, represented "an attempt to impose a rational analytic framework on an area of the SEC's enforcement program that has been characterized too long by disorder and contentiousness." Additionally, Commissioner Gallagher cited a paper coauthored by Commissioner Atkins and now-Cadwalader-Partner Brad Bondi (then counsel to Commissioner Atkins) acknowledging that corporate penalties can harm shareholders. However, Commissioner Gallagher went on to state that if shareholders receive an improper benefit from a corporation's misconduct, corporate penalties may be appropriate.

The Commissioner closed by explaining that the Penalties Statement is itself only an analysis of the law; it is the law itself that should guide the decision-making process of the SEC with regard to corporate penalties. Therefore, revising or rescinding the Statement would not alter the Remedies Act and, in turn, should not alter the SEC's position on corporate penalties.

See: Commissioner Gallagher's Lecture, "Hot Topics: Leading Current Issues in Securities Regulation and Enforcement".See also: Evaluating the Mission: A Critical Review of the History and Evolution of the SEC Enforcement Program, coauthored by Commissioner Atkins and Brad Bondi (then counsel to Commissioner Atkins).