The SEC’s enforcement director, Gurbir Grewal, is leaving the agency, the SEC just announced. The move culminates a three-year tenure during which the agency embarked on a surge in enforcement activity and rulemaking, with increased attention on both Wall Street firms and cryptocurrency ones.
Grewal has led the SEC’s 1,500-person enforcement unit since July 2021, after serving as New Jersey attorney general as well as in other state and federal government roles. During his tenure, the enforcement division has authorized more than 2,400 enforcement matters, resulting in more than $20 billion in disgorgement and civil penalties.
Grewal is reportedly leaving the SEC to embark on private practice, and the departure date is October 11. He will be replaced, on an acting basis, with the division’s deputy director, Sanjay Wadhwa while Sam Walder, the division’s chief counsel, will take over as acting deputy director.
New Jersey AG for three and a half years, Grewal was previously Bergen County prosecutor, serving New Jersey’s most populous county.
Proactive enforcement to protect investors, markets
Along with the 2,400+ enforcement actions noted above, Grewal’s tenure featured more than 340 industry bars against individuals, more than $1 billion in awards to whistleblowers, and the return of billions of dollars to harmed investors.
Under his leadership, the SEC’s enforcement staff embarked on a multi-year investigative initiative focused on financial services firms’ use of personal devices and apps, such as WhatsApp, to discuss business matters. The companies’ alleged failures to abide by recordkeeping rules in preserving these communications led to over $2 billion in civil fines being assessed against dozens of financial services firms of all sizes.
Grewal made a notable comment about one of the SEC’s sweep exams for such recordkeeping failures (involving 15 broker-dealers and one investment adviser): “today’s actions – both in terms of the firms involved and the size of the penalties ordered – underscore the importance of recordkeeping requirements: they’re sacrosanct.”
And the SEC pursued cryptocurrency firms for offering crypto assets without registering with the agency, making misleading claims about them and their suitability for certain investors, and running fraudulent schemes that the agency claimed duped investors and jeopardized the trust investors had in the asset class. More than 100 of the enforcement actions Grewal recommended addressed noncompliance in the crypto space
In a statement, SEC Chair Gary Gensler paid tribute to Grewal: “[e]very day, he has thought about how to best protect investors and help ensure market participants comply with our time-tested securities laws. He has led a Division that has acted without fear or favor, following the facts and the law wherever they may lead. I greatly enjoyed working with him and wish him well”.
A culture of proactive compliance
In a speech last October, Grewal stressed that compliance professionals, consultants, attorneys, accountants, and others serve as the first lines of defense against misconduct and, as such, should strive to create “a culture of proactive compliance,” working to implement effective policies and procedures to ensure firms comply with their legal obligations.
Grewal suggested that proactive compliance (among other things) requires compliance professionals to truly engage with personnel inside their company’s different business units and to learn about their activities, strategies, risks, financial incentives, counterparties, and sources of revenues and profits.
“From recalibrating penalties and remedies to confronting emerging risks to holding issuers, insiders, and gatekeepers accountable, I am incredibly proud of all that we’ve accomplished as a Division during my tenure.”
Gurbir Grewal, departing SEC Enforcement Division Director
“You may come across aspects of your firm’s business that you do not completely understand. That’s not an excuse to punt. Take whatever steps are necessary to learn and understand the issues,” he said at the time.
At the Securities Industry and Financial Markets (SIFMA) annual conference earlier this year, Grewal talked about insider trading and how companies must protect material, nonpublic information. He told the audience in plain terms that the SEC is actively monitoring for trade practices indicative of someone using MNPI and registered firms should be surveilling for the activity as well.
Proactive compliance in the context of reduced civil fines for companies that self-report their misconduct, cooperate in investigations and remediate the compliance deficiencies in their programs was a central theme in Grewal’s press statements and speeches over the last three years.
In a case against 10 firms for what the SEC called “widespread recordkeeping failures” associated with their electronic communications, Grewal explained that: “[o]ne of the orders included in today’s announced actions is not like the others. There are real benefits to self-reporting, remediating and cooperating.” The company he had singled out had self-reported, plus begun a robust program of remediation, paying considerably less as a fine thereby.
At a cyber resilience event last June, Grewal also asserted that his division has no time for “gamemanship” around the decision to disclose; meaning, that there is no reason companies should be more concerned about their reputations than about coming clean with shareholders and the customers whose data and money may be at risk.
A fond nod to his colleagues
“While we have faced and overcome many challenges over the last three plus years, there has been one constant throughout: the public servants of the Enforcement Division stand ready to do everything they can to protect investors and market integrity. Their expertise, professionalism, and dedication are, indeed, unparalleled, and it has been the privilege of a lifetime to have been able to call them colleagues,” Grewal said in the public statement about his upcoming departure.
“From recalibrating penalties and remedies to confronting emerging risks to holding issuers, insiders, and gatekeepers accountable, I am incredibly proud of all that we’ve accomplished as a Division during my tenure.”
He leaves the SEC amidst great uncertainty surrounding which party will control the White House with a national election nearly one month away. There could be a different cadence to the agency’s activities in the next year in all areas, including easing up on the aggressive enforcement stance toward businesses in terms of their disclosure obligations across a myriad of topic areas – a posture the Republican commissioners of the SEC have deemed “rulemaking via enforcement.”
But, of course, it might not change much at all, especially if Chairman Gary Gensler gets to stay at the helm until his five-year tenure ends in 2026.
