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SEC Co-Director Of Enforcement Peikin On Success And Remedies

Peikin

Recently, Steven Peikin (Co-Director of the SEC’s Division of Enforcement) gave this speech in which he talked about the meanings of success of the SEC’s enforcement program as well as the remedies and relief available to the SEC in enforcement actions.

While not Foreign Corrupt Practices Act specific, Peikin’s speech was FCPA relevant and portions of the speech (along with commentary) are excerpted below.

Previous posts here and here highlighted prior SEC enforcement official speeches discussing, and rightly so, how success means more than just number of enforcement actions brought and settlement amounts secured. Peikin continued this theme by stating:

“Many of those who closely follow the work of the Enforcement Division tend to evaluate its effectiveness based on metrics such as the number of enforcement actions the Commission brings each year and the total amount of penalties and disgorgement ordered by the Commission or federal district courts.  These quantitative metrics are of some value in assessing the work of the Division; they certainly provide a rough measure of our overall activity level.  But statistics such as these do not provide a full and meaningful picture of the quality, nature, and effectiveness of our efforts.  Indeed, in my view, when numbers are the primary lens through which our work is viewed, that perspective can be counterproductive.

So to assess whether the Division’s work is effective in accomplishing the Commission’s mission, Stephanie [Avakian – also Co-Director of Enforcement] and I have been moving the conversation to a different set of questions, namely the following:

Are our efforts protecting retail investors?

To what extent is the Commission holding individuals accountable for violations of the law?

Are we keeping pace with technological change?

Do the remedies we recommend effectively further enforcement goals?

And, are we efficiently allocating the Division’s resources?”

The most FCPA relevant question above seems to be “to what extent is the Commission holding individuals accountable for violations of law?” If this is relevant in assessing whether the SEC’s work is “effective,” as Peikin suggests it is, then the SEC is not being effective in the FCPA space.

Here are the numbers.

Since Jan. 1, 2017 the SEC has brought 18 corporate FCPA enforcement actions. Just 2 (Halliburton and SQM) have  involved related FCPA charges against individuals. In other words, approximately 90% of SEC corporate FCPA enforcement actions since Jan. 1, 2017 have lacked related FCPA charges against individuals.

Regarding civil penalties in enforcement actions, Peikin stated:

“[I]n matters involving corporate issuer misconduct, decisions about whether to recommend the assessment of penalties require careful and thoughtful balancing of many factors including, of course, the nature of the misconduct.

We also consider whether application of the Seaboard factors is appropriate.  This includes evaluation of the nature of remedial steps taken by the company, its own self-reporting and self-policing efforts, and the extent of its cooperation with the Commission and other law enforcement agencies.”

Regarding disgorgement in enforcement actions, Peikin stated:

“While there is a careful weighing of factors with respect to penalties, the other primary form of monetary relief – disgorgement – is handled quite differently.  Even where a defendant or respondent cooperates and agrees to meaningful undertakings, it should not be entitled to keep its ill-gotten gains, which we are often in a position to restore to harmed investors.

The Commission has obtained disgorgement in a wide variety of matters, including offering frauds, and most all FCPA resolutions.

[…]

As you probably know, the Supreme Court ruled last term in Kokesh v. SEC that disgorgement was to be considered a penalty for statute of limitations periods, and therefore the proceeds of misconduct obtained by a wrongdoer outside the statute of limitations were insulated from disgorgement.  The impact of the ruling has been very significant and will continue to be.

[…]

The impact of Kokesh has been felt across our enforcement program.  A few months ago, we calculated that Kokesh led us to forego seeking approximately $800 million in potential disgorgement in filed and settled cases.  That number continues to rise.”

As highlighted in this prior post, my response to the above Kokesh gripe is deal with it, not following the law (as held by a unanimous Supreme Court) has consequences.

In conclusion, Peikin stated:

“So what is the takeaway of all of this?  I think as you can see the Commission has at its disposal a wide variety of remedies and relief.  And in the Division of Enforcement we think carefully about what of those tools to recommend to the Commission in every case.  What we do not do is assess large penalties simply for the sake of counting them up at the end of the year   For that reason, the effectiveness of our program cannot be measured with resort to any one quantitative measure, but instead requires a nuanced and qualitative evaluation of our overall impact on achieving our investor and market integrity protection mission.”

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