SEC in 2022: Prepare for More Enforcement
The Securities and Exchange Commission (SEC) is set to adopt a more aggressive enforcement approach in 2022 under the new leadership of Enforcement Director Gurbir Grewal. This new direction is expected to be more stringent than the oversight agenda during the Obama administration. Here are the five key areas of focus for the SEC in the coming year:
- First-Of-Its-Kind Enforcement Actions: The SEC is venturing into uncharted territories by launching novel legal actions aimed at deterring misconduct. These actions apply securities law in unprecedented ways. For instance, the SEC has taken action against an unregistered broker-dealer involved in decentralized finance and a former executive accused of "shadow trading" using confidential information about his company to trade the stock of a rival firm. The SEC is expected to continue expanding and strengthening its enforcement protocols, leading to more "firsts."
- Insider Trading: Despite a decrease in SEC enforcement of insider trading last year, the agency is expected to adopt a stricter stance on the misuse of non-public information in 2022. The SEC is broadening its rules to combat unequal access to information, aided by advancements in market surveillance tools. Proposed new rules aim to remove protections previously afforded to corporate executives from insider trading accusations when they buy or sell their own company's stock. The SEC has also proposed a rule requiring more frequent and detailed disclosures of corporate stock repurchases.
- Cryptocurrency: The SEC has identified cryptocurrency as a high priority for 2022. Enforcement actions against players in the crypto space have escalated under the new leadership. The SEC is firmly against unregistered crypto offerings and is expected to investigate other areas of crypto for potential wrongdoing. The agency is also focusing more on individual defendants in crypto enforcement actions.
- Targeting Individuals: The SEC is shifting its focus from settlements with public companies to targeting individuals it labels as "gatekeepers." This group includes accountants, attorneys, auditors, and compliance officers, all of whom have individual accountability. This shift towards holding individuals, not just corporations, accountable represents a significant change from previous administrations.
- ESG Issues: Environmental, social, and governance (ESG) issues are expected to be higher priorities under the new SEC leadership. The SEC is expected to intensify its focus on companies that engage in "greenwashing" – a practice where a company misrepresents the environmental sustainability of its business or products.
In conclusion, the SEC is expected to adopt a more aggressive enforcement approach in 2022, with a focus on novel areas of enforcement, insider trading, cryptocurrency, targeting individuals, and ESG issues. Companies and their leaders should be prepared for this shift and consider enhancing their compliance measures in response to these anticipated government enforcement actions.