Nov. 2, 2022
My thanks to the Practising Law Institute and the 54th Annual Institute on Securities Regulation. As is customary, I’d like to note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the SEC staff.
On May 27, 1933, when he signed the first of the federal securities laws, President Franklin Delano Roosevelt said: “This law and its effective administration are steps in a program to restore some old-fashioned standards of rectitude.”
For nearly 90 years since, Congress has tasked the Securities and Exchange Commission and our dedicated staff with this “effective administration.”
We do this through overseeing markets, registering entities, enacting rules, examining against the rules, and enforcing those rules.
Today, I am going to focus on that final pillar: enforcement.
In the fiscal year that just ended on September 30, 2022, we filed more than 700 actions. We obtained judgments and orders totaling $6.4 billion, including $4 billion in civil penalties.
These numbers, though, tell only part of the story.
As I said a year ago, I think of the “effective administration” of our enforcement through five themes: Economic Realities, Accountability, High-Impact Cases, Process, and Positions of Trust.
Justice Thurgood Marshall, in describing the scope of the federal securities laws, said, “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.”
Thus, to effectuate Congress’s purpose, we look to underlying economic realities regardless of the “form” or “name” of the securities, funds, or investors involved. We follow Aristotle’s principle: “Treat like cases alike.”
Economic realities inform every sector of our enforcement program. To use “effective administration” in my speaking time, though, let me point to a few cases from this past year.
First: If you fail to register a security as required—or to register appropriately as an investment company—you violate the securities laws, regardless of the “form” or “name” of the securities involved.
That’s why, when BlockFi failed to register the offers and sales of a crypto lending product, and made materially false and misleading statements about those securities, we charged them.
Second: If you improperly trade securities on inside information, you violate the securities laws, regardless of the “form” or “name” of the securities involved.
That’s why, when a former Coinbase manager and others allegedly misappropriated confidential information to purchase crypto asset securities, we charged them.
Finally, fraud is fraud, regardless of the types of investors you have defrauded and the types of securities used in the fraud.
That’s why, when several firms—Allianz Global Investors, Archegos Capital Management, and Infinity Q Capital Management, or in some cases their executives—used complex products allegedly to defraud investors, we charged them.
If you defraud any investor—retail or institutional, sophisticated or not—you will be held accountable.
Secondly, nothing motivates what Roosevelt calls “rectitude” quite like accountability.
We use many tools to hold violators accountable—including bars and suspensions, penalties and disgorgements, injunctions and cease-and-desist orders, undertakings, admissions, criminal referrals, and allegations or findings of fact.
When it comes to accountability, the details matter.
The details mattered when we held Allianz and its senior managers accountable. A key US subsidiary of Allianz (AGI US) admitted to the wrongdoing and pleaded guilty in a parallel criminal action. We charged three senior managers, imposing injunctions on two and continuing to litigate against one. We imposed a penalty of $1 billion on the firm. Moreover, as a result of its guilty plea, AGI US no longer advises mutual funds in the United States.
The details mattered when we held Boeing and its then-CEO accountable. Both misled investors about the safety of Boeing’s airplanes—even as two crashed, killing 346 people. We charged the company and then-CEO for making false statements about their airplanes’ safety.
Make no mistake: If a company or executive misstates or omits information material to securities investors, whether in an earnings call, on social media, or in a press release, we will pursue them for violating the securities laws.
The details mattered when we filed a complaint to hold Vale S.A., a Brazilian mining company, accountable. Vale told the public that their dams were safe, all while they allegedly manipulated safety audits. Then a dam collapsed, killing 270 people. We charged them for allegedly making misleading disclosures and engaging in other deceptive misconduct. Our litigation is ongoing.
Allianz, Boeing, and Vale are but a few examples of how we hold violators accountable.
If you are a victim of fraud or any other violation of the securities laws, then the highest-impact case is the one we bring against those who wronged you.
When you, the lawyers in this room, think about high-impact cases, you likely think of a different kind of matter: cases that send a message to the markets. You write memos to your clients about them. Hopefully, market participants take notice of these high-impact cases and change behavior.
Let me highlight two recent examples.
The first relates to books and records. Since the 1930s, recordkeeping obligations have been vital to market integrity and the SEC’s “effective administration.”
Last year, we charged J.P. Morgan Securities for widespread failures to meet these obligations. Employees, supervisors, and even managing directors conducted, and failed to maintain, off-channel communications through WhatsApp, text messages, and personal email accounts.
Cases like these have happened before. Frankly, though, some market participants did not act as if they got the message. So we imposed a $125 million penalty against J.P. Morgan, nearly 10 times what we have imposed in previous similar matters. They admitted their misconduct.
We then did a sweep for similar violations. In October, we charged 16 additional financial entities for similar recordkeeping failures, all of whom admitted their misconduct, in a combined settlement of $1.1 billion. We ordered undertakings against the 16 firms designed to remediate past failures and prevent future misconduct, and our investigation is ongoing.
I hope this sends a message to other registrants. Books and records matter. We will strive to ensure that penalties are not seen as the cost of doing business. We will use sweeps, initiatives, and undertakings to shape market behavior.
Second, high-impact cases aren’t just the ones that have a high profile or high penalties. They also can be cases where we reward good behavior.
We rewarded good behavior with Cronos Group Inc., a Nasdaq-listed cannabis company based in Toronto.
Upon discovering material accounting errors, Cronos promptly self-reported and cooperated with our investigation. We charged the company and a former insider for the violation, but we did not impose a penalty.
This should send a message: If you mess up—and people do mess up sometimes—come in and talk to us, cooperate with our investigation, and remediate your misconduct.
Now, let me turn to process.
Process is about fairness: to the market, to the public, to those who are investigated, and to those who are wronged.
Process is about timeliness. I think we should work thoughtfully and expeditiously to bring matters to resolution.
Process is about working with our partners at the federal, state, and international level, as well as with self-regulatory organizations.
One recent example relates to Trevor Milton and the company he founded, Nikola Corporation.
We alleged that, among other claims, Milton misled investors by saying that Nikola had “billions and billions and billions and billions of dollars in orders.”
This sounds more like a botched Carl Sagan quote than a full, fair, and truthful disclosure. We charged Milton and Nikola with fraud. Just last month, thanks to the work of our partners at the Department of Justice, Milton was found guilty in federal court.
In bringing our action against BlockFi, several state securities regulators and the North American Securities Administrators Association played a key role.
I thank all of our partners involved in matters from the recent fiscal year.
Finally, process is about following the facts and the law wherever they lead. When the facts demand a fight, we are not afraid to go to court. Over the recent fiscal year, we litigated jury or bench trials in 15 cases in federal district courts. We won favorable verdicts in 12.
If the facts and the law merit we do not make a case, I am comfortable with that.
Positions of Trust
Finally, to all the securities lawyers I am speaking to, you play an essential role to the clients that you counsel.
You also have a role as gatekeepers in upholding the law.
For instance, today’s event takes place in the State of New York, where the state courts describe the role of attorney as a position of duty, trust, and authority, conferred by governmental authority for a public purpose.
We want you to succeed in meeting these standards of rectitude.
When lawyers—or other gatekeepers, like auditors and underwriters—breach their positions of trust and violate the securities laws, we will not hesitate to take action.
During the recent fiscal year, for example, we charged an attorney for his role in an unregistered, fraudulent securities offering, and we suspended him from practicing before the SEC as an attorney.
We also are litigating an action against an attorney for his alleged role in a would-be pump-and-dump scheme. In addition to other remedies, we seek an injunction to prohibit him from providing legal services regarding securities offers or sales.
In June, we charged Ernst & Young (EY) for cheating by its audit professionals on its ethics exams.
These are professionals whose job, amongst other important responsibilities, is to catch cheating by clients. Yet, these same professionals cheated on their ethics exams. Further, EY attorneys who were aware of the conduct failed to bring these problems to our attention despite direct requests.
What an egregious failure of the public trust. In charging EY, we imposed remedial actions and a $100 million penalty, the largest of its kind against auditors.
If issuers or registrants in our markets are relying upon them, it doesn’t matter where the gatekeeper is located. This fall, we charged Deloitte-China, an audit firm who essentially asked companies to complete critical parts of their own audits, a plain violation of professional requirements. Deloitte-China abdicated their responsibility as a gatekeeper. Among other things, we imposed a $20 million penalty.
We also filed actions against four underwriters—Oppenheimer & Co., BNY Mellon, TD Securities, and Jefferies LLC—charging them with failing to meet disclosure requirements when offering municipal bonds. This, too, was the first action of its kind.
As I said last year, if your client is considering a course of action that takes them up to the line, keep them back from the line.
On May 23, 1934, nearly one year after Roosevelt spoke of “standards of rectitude,” he received a letter from Felix Frankfurter, his adviser who later would become a Supreme Court justice. Frankfurter wrote regarding the “effective administration” the SEC would need to succeed.
“You need administrators,” Frankfurter wrote, “… who have stamina and do not weary of the fight, who are moved neither by blandishments nor fears, who in a word, unite public zeal with unusual capacity.”
That’s our remarkable staff: public servants, cops on the beat, uniting public zeal with unusual capacity.
I thank them for their service. I thank them for their rectitude.
 See Reves v. Ernst & Young, 494 U.S. 56, 60-61 (1990).
 For the Allianz matter, see SEC v. Tournant, et al., No. 22 Civ. 4016 (S.D.N.Y.) (complaint filed May 17, 2022); In re Allianz Global Investors U.S. LLC, Release No. 34-94927 (May 17, 2022); In re Trevor L. Taylor, Release No. 34-94925 (May 17, 2022); In re Stephen G. Bond-Nelson, Release No. 34-94926 (May 17, 2022), available at https://www.sec.gov/news/press-release/2022-84.
For the Archegos matter, see SEC v. Hwang, et al., No. 22 Civ. 3402 (S.D.N.Y.) (complaint filed Apr. 27, 2022), available at https://www.sec.gov/news/press-release/2022-70.
For the Infinity Q matter, see SEC v. Velissaris, No. 22 Civ. 1346 (S.D.N.Y.) (complaint filed Feb. 17, 2022), available at https://www.sec.gov/news/press-release/2022-29.
 See In re Barclays Capital Inc., Release No. 34-95919 (Sept. 27, 2022); In re Citigroup Global Markets Inc., Release No. 34-95920 (Sept. 27, 2022); In re BofA Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc., Release No. 34-95921 (Sept. 27, 2022); In re Goldman Sachs & Co. LLC, Release No. 34-95922 (Sept. 27, 2022); In re Jefferies LLC, Release No. 34-95923 (Sept. 22, 2022); In re Morgan Stanley & Co. LLC and Morgan Stanley Smith Barney LLC, Release No. 34-95924 (Sept. 27, 2022); In re Nomura Securities International, Inc., Release No. 34-95925 (Sept. 27, 2022); In re Credit Suisse Securities (USA) LLC, Release No. 34-95926 (Sept. 27, 2022); In re Cantor Fitzgerald & Co., Release No. 34-95927 (Sept. 27, 2022); In re Deutsche Bank Securities Inc. DWS Investment Management Americas, Inc., and DWS Distributors, Inc., Release No. 34-95928 (Sept. 27, 2022); In re UBS Financial Services Inc. and UBS Securities LLC, Release No. 34-95929 (Sept. 27, 2022), available at https://www.sec.gov/news/press-release/2022-174.
 See In re Cronos Group Inc., Release No. 33-11123 (Oct. 24, 2022); In re William Hilson, CPA, CA, Release No. 33-11124 (Oct. 24, 2022), available at https://www.sec.gov/news/press-release/2022-191. Without admitting or denying the SEC’s findings, Cronos and Hilson offered to settle the matters by agreeing to cease and desist from future violations of the charged provisions. In addition, Cronos agreed to retain an independent compliance consultant to review, assess, and make recommendations with respect to the firm’s internal control over financial reporting and internal accounting controls. Hilson agreed to a three-year officer and director bar and agreed to be suspended from appearing and practicing before the SEC as an accountant for at least three years. The Commission determined not to impose a financial penalty on Hilson in light of his consent to pay $70,000 (CAD), or approximately $54,000 (USD), to the Ontario Securities Commission for similar conduct.
 For additional examples, see SEC v. Mohamed, et al., No. 22 Civ. 3252 (N.D. Ga.) (complaint filed Aug. 15, 2022), available at https://www.sec.gov/news/press-release/2022-145; SEC v. Shah, No. 22 Civ. 3012 (S.D.N.Y.) (complaint filed Apr. 12, 2022), available at https://www.sec.gov/litigation/litreleases/2022/lr25367.htm; SEC v. Bauer, et al., No. 22 Civ. 3089 (S.D.N.Y.) (complaint filed Apr. 14, 2022) and SEC v. Calabrigo, No. 22 Civ. 3096 (S.D.N.Y.) (complaint filed Apr. 14, 2022), available at https://www.sec.gov/news/press-release/2022-62.
 One of the 15 trials in FY 22 was in SEC v. Henry B. Sargent, 19-cv-11416 (D. Mass). There, the jury returned a thirteenth FY 22 verdict in the SEC’s favor, but a different judge of the court ruled that the trial judge’s decision not to poll the jury constituted reversible error, vacating the verdict and ordering a new trial. The Commission was permitted to file an interlocutory appeal of this ruling. The Commission filed the interlocutory appeal, which is currently pending in the United States Court of Appeals for the First Circuit. See SEC v. Henry B. Sargent, App. No. 22-1596 (1st Cir.). A verdict for the SEC on any claim is treated as a win, unless it is later set aside by the trial court or on appeal.
 See In re John W. Pauciulo, Esq., Release No. 33-11080 (July 7, 2022), available at https://www.sec.gov/enforce/33-11080-s. Without admitting or denying the SEC’s findings, Pauciulo consented to an order finding that he violated the registration and antifraud provisions of Sections 5 and 17(a) of the Securities Act of 1933, and the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Pauciulo also agreed to pay a $125,000 civil penalty and consented to the imposition of a cease-and-desist order, and an order denying him the privilege of appearing or practicing before the SEC as an attorney, which includes the right to apply for reinstatement after five years.
 See In re TD Securities (USA) LLC, Release No. 34-95751 (Sept. 13, 2022); In re BNY Mellon Capital Markets, LLC, Release No. 34-95750 (Sept. 13, 2022); In re Jefferies LLC, Release No. 34-95749 (Sept. 13, 2022); SEC v. Oppenheimer & Co. Inc., No. 22 Civ. 7801 (S.D.N.Y.) (complaint filed Sept. 13, 2022), available at https://www.sec.gov/news/press-release/2022-161. The SEC’s litigation against Oppenheimer is ongoing.