United States: The Judge Speaks: The SEC’s New Enforcement Director Provides First Glimpse into Her Priorities

By: Thoreau Bartmann, Lance Dial, Stephen Topetzes, and Meghan Flinn

Judge Margaret Ryan, the newly-appointed director of the Enforcement Division of the Securities and Exchange Commission (SEC) gave her first public remarks this week. Given the “new day” dawning at the SEC, many have been eager to hear her vison for the role of Enforcement at the SEC. Judge Ryan delivered!

Wells Process

The Judge began by highlighting the importance of the Wells process, where the subject of an enforcement action is notified of the possibility of charges. She announced two major policy positions related to the Wells process. First, that all recipients would have at least 4 weeks to reply to the Wells notice. Previously there had been no explicit time period for a response. However, she also emphasized that there would be no tolerance for those who deliberately drag out the investigation process.

Second, she said that a “senior” member of the enforcement leadership team would be at every Wells meeting, which has not always been the case. This does not imply that Judge Ryan will attend each meeting, but access to “senior” enforcement staff at the Wells meeting ensures that recipients have a sufficiently senior audience to voice their concerns.

Enforcement Approach

The Judge then clearly dispelled the idea that the SEC had limited its enforcement activity. She emphasized that she was most concerned with the quality of enforcement actions, rather than a number. Fraud, Ponzi schemes, and scams that result in investor losses will remain a principal focus. She also highlighted that misconduct that undermines market integrity, like insider trading, wash trading, and market manipulation is also a priority.

She contrasted these goals with non-compliance with other provisions of the securities laws, such as accounting controls, books and records, and even compliance with an adviser’s fiduciary duties. She noted that these compliance matters may not be “on par with fraud”, but that her priority is on enforcing such violations where there is a risk to investors, to the market, or clear benefits to the violator.

While her initial priorities are unsurprising, her discussion of when and how enforcement engages with technical violations of the securities laws signals a significant shift in approach. The full text of her speech is available here.