Practical Insights from SEC’s Newest Enforcement Associate Directors

 

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By Y. Ramona Lin[1]

Last week, I had the pleasure of [virtually] attending a lunch and discussion featuring two newest SEC Enforcement Associate Directors, Anita Bandy and Carolyn Welshhans.[2] The discussion was moderated by Kara Brockmeyer, a partner at Debevoise & Plimpton and former Chief of the SEC’s FCPA Unit.

(Disclaimer: the views of the individual associate directors do not represent those of the Commission or their colleagues.)

Some key takeaways from the discussion included:

  • Both associate directors focus resources on the most significant market risks. They are committed to conducting efficient investigations that will most effectively further SEC enforcement goals. The assistant director groups under them will continue to use technology and data analytics to uncover wrongdoings, under a more comprehensive and proactive approach.
  • Both associate directors are committed to protecting retail investors. They will continue to pursue accounting fraud, offering fraud, insider trading, and cyber-related threats.
  • Associate Director Welshhans hopes to promote more conversations among the enforcers, the defense bar, and the industry players in order to help the SEC stay current with emerging legal issues and to inform the defense counsel and their clients about enforcement priorities.
  • Associate Director Bandy emphasized her efforts to streamline the investigation process and develop more leads to generate cases.
  • Both associate directors provided practical advice on how to navigate the Wells process. [3] First, the defense counsel should consider reaching out to staff attorneys at important investigation stages. Both associate directors appreciate hearing from defense counsel at critical junctures of investigations, such as pre-Wells meeting, at the Wells meeting, and the point before the charging decision. Defense counsel, however, generally should communicate with staff attorneys, absent some extreme circumstances where counsel need to present urgent information or newly discovered serious wrongdoings to the associate directors.
  • Second, defense counsel should focus on their strongest argument(s), legal or evidentiary, at a Wells meeting. Counsel should support their legal arguments with comparable case law or distinguish their case from prior Commission actions. Defense counsel should also consider notifying the staff of their talking points before hand, so the staff can prepare for a productive meeting.
  • Another reason for defense counsel to focus on their strongest arguments during the Wells meeting is that SEC trial attorneys are often invited to those meetings to evaluate litigation risks. Both associate directors value the trial unit’s input; defense counsel should take advantage of limited in-person meeting opportunities to convince the SEC to not take enforcement actions.
  • Third, defense counsel should demonstrate at the Wells meeting how their client’s cooperation has facilitated the investigation in a material way to receive credit. Rather than explaining how clients have fulfilled their obligation to cooperate, defense counsel should stress how the cooperation has helped the SEC’s investigation – e.g., it caused the staff to bring the case faster, gave staff access to those witnesses or documents that would otherwise be difficult to obtain, or disclosed new misconduct or potential charges that the staff would not have otherwise discovered. Both associate directors also take into consideration the company’s efforts to change policies or procedures, add controls, and conduct internal investigations.
  • Before requesting access to key testimony and evidence, the investigated party and its counsel should consider collateral issues, such as implications on whistleblower protection and/or on any parallel criminal investigations. The associate directors make case-by-case determinations on such requests.
  • Lastly, defense counsel should use Wells submissions and white papers for different purposes. Wells submissions are made close to the juncture when the Enforcement Division decides whether or not to recommend a charge, while white papers can be submitted at a much earlier stage if defense counsel wants to help narrow the investigation.

In sum, this webinar has shed light on effective ways to approach the Wells process, including when to reach out to staff attorneys, what to focus on during the meeting, how to receive cooperation, and how to request access to evidence. Conversations like this continue to help defense counsel appreciate the SEC’s enforcement priorities and approaches.

[1] Ramona is a law clerk with the Law Office of Sara Kropf. She is awaiting admission to the District of Columbia Bar.

[2] For the first time in the history of the Enforcement Division, all four of its Associate Directors are women. Kudos to the SEC!

[3] A Wells notice is a letter from the SEC to inform an investigated party of its decision to bring charges against them. It is usually issued at the end of an SEC investigation and provides the investigated party with an opportunity to respond and explain why the SEC should not bring an enforcement action.

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