WASHINGTON, D.C.—Dennis M. Kelleher, Co-founder, President, and CEO, released the following statement in connection with today’s announcement by the Securities and Exchange Commission (SEC) on its enforcement record for fiscal year 2022:
“The SEC’s enforcement results, as presented by the Chair today, were much improved, but much more needs to be done, including relying less on impressive-sounding fine amounts in particular. The focus must shift to quality over quantity. Bragging about being the best toll collector on the corporate crime highway is like a police department bragging about the number of speeding tickets it gives to escaping bank robbers – that approach won’t punish, deter, or stop lawbreaking.
“Of course, corporate fines are important, but they’re just a starting point, and by themselves they are the wrong and often misleading metric for success. That’s because (1) big, headline-grabbing, and even record-breaking fines to the SEC are often really small if not meaningless to gigantic corporations with billions in quarterly revenues, (2) those big-sounding fines are often paid to avoid much more meaningful corporate penalties, and (3) that corporate money is used to buy “get out of jail free” cards for executives and officers.
“That’s why large dollar fines imposed on corporations simply do not fool, punish, or deter corporate directors, executives, officers, or staff who very rarely suffer any consequences for their lawbreaking. Indeed, it has been proven over decades that fines, no matter how big, will not stop the corporate and Wall Street crime spree. In fact, there is a good argument that those fines in effect reward past lawbreaking and incentivize future lawbreaking. That’s because banks do not break the law—bankers do and they know that the risk of getting caught or personally punished is very, very low. That’s why the lawbreaking will continue until those bankers and corporate executives and supervisors are meaningfully punished. That’s also why it is long past time for the SEC to require the Enforcement Division to identify and hold individuals including senior executives accountable in every case.
“While the Chair discussed several cases today that went beyond just a big fine, the SEC will not punish past lawbreaking and therefore deter future corporate crime unless and until it imposes the full panoply of sanctions against individuals as well as corporations in every case as set forth below. Until then, corporate lawbreaking and recidivism will continue and increase.”
Punishment for individuals must include: (1) charges of substantive violations like fraud, not mere disclosure and record keeping violations; (2) fines that hurt and must be paid out of individuals’ own pockets (without insurance or indemnification); (3) disgorgement of all compensation related in any way to the lawbreaking; (4) bars and suspensions from employment in the industry; (5) impositions of injunctions and cease-and-desist orders; (6) full, complete, and detailed public disclosure of the findings of fact underpinning their lawbreaking; (7) admissions of wrongdoing; and (8) referrals for criminal prosecution in appropriate cases.
Punishment for corporations must similarly include: (1) substantive charges; (2) fines big enough in relation to a firm’s balance sheet and revenues that it negatively impacts the stock price so that shareholders pay a price, take notice, and hold corporate executives accountable; (3) disgorgement of all ill-gotten gains related in any way to the lawbreaking; (4) the denial of waivers for the imposition of collateral consequences, including prohibitions from business and capital-raising activities; (5) imposition of injunctions and cease-and-desist orders as well as the imposition of undertakings and independent monitors to ensure future compliance; (6) full, complete, and detailed public disclosure of the findings of fact underpinning all the lawbreaking, including the conduct of specifically identified staff, officers, supervisors, and executives; and (7) admissions of wrongdoing by the appropriate corporate entity, not some minor subsidiary carefully chosen to minimize the impact of the penalties.
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