Calfee, Halter & Griswold LLPSEC Tones Down, DOJ Ramps Up Enforcement Against Corporations and Individuals

October 31, 2017

Recent public announcements from top officials at the United States Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) signal significant changes to corporate enforcement policy. While the DOJ appears to be ramping up its prosecutorial approach toward corporate enforcement of individual actors, the SEC is changing direction and pulling back from its more sweeping prosecutorial enforcement.

On October 6, 2017, Deputy Attorney General Rod Rosenstein delivered a speech reaffirming DOJ’s commitment to aggressively investigating and prosecuting individual perpetrators of corporate fraud. Rosenstein questioned the efficacy of using corporate settlements as a mechanism for deterring and punishing corporate wrongdoing: “Corporate settlements do not necessarily directly deter individual wrongdoers. They may do so indirectly, by incentivizing companies to develop and enforce internal compliance programs. But at the level of each individual decision-maker, the deterrent effect of a potential corporate penalty is muted and diffused.” Instead, Rosenstein emphasized the importance of shifting the DOJ’s attention to focus on individual accountability: “The Department will not relent in seeking to hold corporate executives accountable if they violate the law.” By underscoring DOJ’s “resolve to hold individuals accountable for corporate wrongdoing,” Rosenstein outlined the agency’s new, more aggressive focus on deterrence and corporate enforcement at the individual level.

On October 26, 2017, the Co-Director of the SEC’s enforcement division, Steven Peikin, announced that the SEC would pivot away from its more aggressive prosecutorial approach to enforcement. After the financial crisis, the SEC embarked on a “broken windows” approach toward investigating and prosecuting a vast swath of cases, including cases over relatively minor legal violations. However, with a change in leadership, and with potentially 100 fewer investigators and supervisors, Peikin declared that the SEC will be more “selective and bring a few cases to send a broader message rather than sweep the entire field.” Nevertheless, Peikin reaffirmed the SEC’s commitment to implementing a rigorous corporate enforcement program, with the goal of deterring and punishing intentional wrongdoing that results in losses for investors.

In sum, Deputy Attorney General Rod Rosenstein’s recent pronouncement signals a renewed focus and commitment by the DOJ to aggressively prosecute and deter individual perpetrators of corporate fraud. Meanwhile, the SEC has decided to move in the opposite direction, pulling back from a broader, more aggressive prosecutorial approach to enforcement, relying instead on a more strategic, calculated enforcement effort. The divergent paths forged by the DOJ and SEC highlight the considerable uncertainty companies and individuals face as the corporate enforcement landscape continues to evolve.

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