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Chair White Says No Company Is Too Big to Indict

Businesses subject to SEC regulation need to understand that size is no shield from prosecution or punitive enforcement measures in response to wrongdoing. The SEC prefers to prosecute individuals, but when necessary, corporations will be charged with fraud and manipulating the markets.

Public companies and other businesses subject to SEC regulation need to understand that size is no shield from prosecution or punitive enforcement measures in response to wrongdoing.

“No corporate entity is too big or complex to indict,” said SEC Chair Mary Jo White, a former federal prosecutor, on May 19, 2014. “Their size and complexity does not even enter into our charging analysis, and so we can put aside the threshold question in SEC cases.

“At times, because of the diffuse ways large entities operate today, uncovering sufficient evidence to hold individuals accountable can be difficult,” White said during a speech at a New York City Bar Association conference on white collar crime. “In those situations, we at the SEC have not shied away from charging only corporations.”

White said charging a corporation with negligence-based fraud where the SEC does not charge the individual “is not something we take lightly but is solidly grounded in law and is an important tool in our enforcement arsenal.”

In practice, charging only corporations with negligence can be appropriate when an entity makes a material misstatement or omission in the offer or sale of securities, and the evidence will not support holding any individual responsible.

White took time to dispel any notion that the SEC does not charge individuals, noting that cases where an individual is not charged is “not the rule, but the exception.”

Financial institutions aren’t too big to be indicted, either, White said, noting how, as U.S. attorney, her office prosecuted Daiwa Bank, Republic Securities, and Bankers Trust.

The SEC and the U.S. Department of Justice have a long history of coordinating on investigations involving the Foreign Corrupt Practices Act to the point that both agencies developed a resource guide that closely examines their approach to enforcement.

“This division of labor and remedies achieves full accountability without regulatory double dipping,” White said, adding that regulators must collectively try “to avoid unnecessary competition among ourselves for cases and headlines.”

“Enforcement is a serious business, and we have a professional responsibility to use our existing resources wisely and in a manner that best applies our specific expertise and enforcement tools” she said. “There is never room for anything other than a thorough investigation of all the evidence wherever and to whomever it may lead.”

White also discussed the SEC’s use of nonmonetary remedies and resolutions.

“One of the SEC’s most powerful nonmonetary remedies to protect the public from future harm is our ability to bar wrongdoers who work in the industry or appear before the SEC,” she said. “I encourage the enforcement division to increase the use of bars in appropriate cases and be sure to obtain bars for periods of time that respond to the seriousness of the misconduct.”

White also referred to the SEC’s recently adopted policy to require admissions of wrongdoing in certain cases.

“We seek admissions in cases where there is a heightened need for public accountability or for the investing public to know the unambiguous facts,” White said. “We have now required admissions in a number of significant cases. Expect to see more as we go forward, and the new protocol evolves.”

White delivered her comments a few days after the May 15 announcement that Chief Accountant Paul Beswick would be leaving the SEC and returning to the private sector. White said the SEC was in the process of looking for a successor and called Beswick “a terrific chief accountant.”