The acting head of the SEC enforcement division touted the staff’s focus on firms’ off-channel communications, such as company employees' business-related texts and WhatsApp messages.
In fiscal year 2024, the SEC settled charges with more 70 firms resulting in more than $600 million in civil penalties for failures to maintain and preserve electronic communications, said Sanjay Wadhwa, enforcement division acting director, at the Securities Enforcement Forum D.C. 2024 on Nov. 6. Since December 2021, the SEC has settled charges with more than 100 firms that resulted in more than $2 billion in penalties for such failures, he added. Some stakeholders have criticized the SEC for holding firms to an expectation of perfection with respect to off-channel communication policies.
“Compliance with those requirements is essential to investor protection and well-functioning markets; conversely noncompliance thwarts effective oversight of the industry, harming investors,” Wadhwa said.
When determining the size of penalties in off-channel enforcement cases, Wadhwa said the SEC considers things like the size of the firm and the regulated parts of its business; the scope and scale of the violations; past precedent with similar violations; the firm’s efforts to comply with its record-keeping obligations and to prevent off-channel communications; and whether a firm self-policed, self-reported, remediated, or took other steps to meaningfully cooperate with the SEC's investigation.
Moving forward, the best measure of the initiative’s success is how it has changed industry behavior and spurred proactive compliance by market participants, Wadhwa said.
“We’re seeing that in the number of firms that are improving their policies and procedures and implementing remedial measures,” he added. “And we’re seeing it in the number of firms that are self-reporting violations.”
During a question-and-answer session, Wadhwa was asked how President-elect Donald Trump’s victory will impact the division.
While the staff is “still processing the news,” he said its mission to protect investors will continue unabated.
“We don’t take a holiday from protecting investors,” he said. “We don’t take a break, we don’t put pencils down and say, ‘Well, let’s just wait for the new folks on the 10th floor to tell us what to do.’ There are ongoing investigations, well over 1,500 of them, and those will continue.”
The 10th floor in the SEC’s Washington headquarters is where the chair’s office resides. Trump will almost assuredly replace SEC Chair Gary Gensler, though the latter’s term doesn't expire until 2026.
