S6:E8 | Amendments to the SEC Enforcement Manual | Compliance in Context

Welcome back to the Compliance In Context podcast! On today’s show, we will be diving into the SEC Enforcement Manual, and more specifically, to some of the recent amendments that were made and what it tells us about the state of SEC Enforcement right now. To help guide us through the conversation, we are very pleased to welcome in Brian Rubin and Ellen Connell. In our Headlines section, SEC and CFTC begin to clarify application of federal securities laws to cryptocurrency, and finally, we close up today with another installment of Outtakes, where we try to help spread the word about an active phishing campaign targeting FINRA and SEC-registered financial services firms and advisers and how to make sure to avoid getting caught flat-footed.

Show

Headlines

• SEC and CFTC jointly issued an interpretive release regarding the application of federal securities laws and federal commodities laws to certain crypto assets and transactions

Interview with Brian Rubin and Ellen Connell

• What is the SEC Enforcement Manual and what is its purpose?
• The SEC recently announced a broad set of revisions to its Enforcement Manual. At a high level, what was the rationale for the update and what does it tell us about the current state of the Division of Enforcement?
• What is the new process for obtaining cooperation credit?
• What are some of other factors the SEC weighs when determining whether to apply cooperation credit?
• Were there any other noteworthy changes to the manual that firms and individuals should be aware of as they are going through an investigation?
• The staff indicated greater access to the investigative file, evaluating whether providing access would help the recipient respond meaningfully and help both sides assess the strength of the evidence. Does this really mean greater access to the file?  Are we talking full open jacket?
• Overall, what is your reaction to the SEC Enforcement Manual updates? 
• What is the longest lasting impact?
• Regardless of the increase or decrease in numbers, where do you expect most of the enforcement cases to come from—exams or elsewhere?
• Keeping in mind the new changes to the SEC Enforcement Manual, do you think firms should take a harder look at self-reporting?

Outtakes

• Active phishing campaign targeting FINRA and SEC-registered financial services firms and advisers

Quotes

11:20 – “So the enforcement manual is basically an internal playbook guiding the staff on how to conduct investigations and recommend enforcement actions. When I was there, and I don’t know if this is still the case, it was in a red plastic binder, and we referred to it as the Red Book. It’s to help ensure fairness and consistency, and transparency for the process. And it covers everything from opening investigation to collecting evidence, engaging with companies and individuals, the Wells process, negotiations, cooperation, as we’ll talk about.” – Brian Rubin

13:11 – “This is the first set of updates since 2017, so it’s been quite a while. And the then SEC enforcement director (who just as we’re recording, announced her resignation just yesterday)she was quoted, Judge Margaret Ryan, in the press release explaining the relevance, saying that these updates to the enforcement manual are intended to ensure greater uniformity, to reflect the division’s best practices, to improve the staff’s ability to carry out the SEC’s mission of work on behalf of investors.” – Ellen Connell

16:45 – “Cooperation credit is something that we’ve been talking about in the securities industry for years. It’s kind of like the weather in Chicago, or too many emails in your email box; everybody talks about it and complains about it, but nobody really does anything about it. So I think this is an attempt to try to do more on it, so they’re laying out more clearly what the SEC expects. And cooperation isn’t going to be automatic. Simply complying with subpoenas won’t work. You have to go above and beyond.” – Brian Rubin

43:20 – “It shows that the SEC overall is being thoughtful about how it handles investigations. A lot of these issues, as I said before, have been discussed for years or decades, so it’s great that they are rethinking the process, looking for consistency, transparency, and fairness. Ultimately, at the end of the day, neither the SEC staff nor the defense side wants to fight about process-type issues. The things they want to focus on are: were there violations, were there intentional violations, were people harmed?” – Brian Rubin

44:13 – “To some degree, the impact of these revisions remains to be seen. In any event, they should really help companies shape their pre-SEC enforcement engagement behavior—as it relates to how they conduct their internal investigations, how they supervise, how they enforce their policies and procedures. And these changes could really increase companies’ opportunities to be heard in the enforcement process. But it’ll be interesting to see in the coming months, whether as we see settlements being announced, whether companies are getting self-reporting and or cooperation credit in those forthcoming orders.” – Ellen Connell