Enforcement Director Defends Decision to Empower Staff  

Acting SEC Enforcement Director Sanjay Wadhwa defended the decision to empower frontline Division staff "by largely deferring to their judgment on various issues in our investigations and our recommendations to the Commission." 

Speaking at PLI's Annual Institute on Securities Regulation, Mr. Wadhwa concluded that the decision to empower Enforcement staff "protected innumerable investors, both by putting an end to the specific conduct at issue, but also by deterring other market participants who saw the Commission act forcefully and, in response, remediated their own violations or redoubled their efforts at compliance." Mr. Wadhwa argued that the enforcement results achieved over the last three years, evidenced the success of the decision to delegate more discretion to staff:

• Key Enforcement Actions. Mr. Wadhwa said the decision to empower staff allowed the Division to pursue cases addressing (i) material misstatements by public companies, (ii) professional failures by "gatekeepers" (e.g. auditors and lawyers) and (iii) advisory firms' failure to disclose conflicts of interest. Mr. Wadhwa also credited the Division for acting against corporate insiders who abused their roles for personal benefit, and against broader instances of large-scale fraud. 
• Balancing Strong Enforcement with Cooperation. Mr. Wadhwa said that defense attorney arguments that greater autonomy for enforcement staff would lead to overly aggressive charges and penalties were "misplaced." He cited the SEC's "Wells process," which allows parties under investigation to present their case before charges are finalized, as a process that ensured fairness and which frequently resulted in reduced charges or even decisions not to pursue cases at all.
• Encouraging Self-Reporting and Remediation. Mr. Wadhwa emphasized that the Division rewarded entities that self-policed, self-reported and remediated issues. He explained that Enforcement staff often recommend more lenient outcomes for those who demonstrate genuine cooperation, including reduced penalties or even no penalties in some cases. 

Mr. Wadhwa argued that self-regulation alone cannot replace regulatory oversight and enforcement. He said that assessing appropriate penalties were part of a strategy to make compliance more attractive than non-compliance. He emphasized that these penalties have coincided with increased self-reporting and compliance efforts.