SEC Enforcement in 2022: A Look Ahead

This is the sixth post in this year’s series examining important trends in white collar law and investigations. Our previous post discussed trends in sanctions & export controls enforcement. Up next: trends in False Claims Act enforcement.


  • The SEC Division of Enforcement’s increasingly aggressive pursuit of investigations and enforcement actions will continue in 2022.
  • Stiffer corporate penalties and a more restrictive approach to cooperation credit are likely over the coming year.
  • Enforcement will continue to focus on longstanding priorities such as insider trading and private fund disclosures, while intensifying its scrutiny in newer areas including ESG, cyber enforcement, and SPACs.
  • The SEC’s highly successful whistleblower program will continue to feed the Enforcement pipeline and encourage employees to report wrongdoing to the agency.

During 2021, the U.S. Securities and Exchange Commission (“SEC”) met expectations that the agency’s enforcement program would move in a more aggressive direction under the Biden administration.  Through the rhetoric of its leadership and its enforcement actions, the SEC has signaled a tougher stance on areas of longstanding interest such as insider trading and investment adviser disclosure, as well as more recent priorities such as ESG investing and cryptocurrency.  (We discussed the outlook for enforcement of the Foreign Corrupt Practices Act, another long-established SEC priority, in a prior post.)  In particular, this shift was reflected in numerous public statements by SEC Chairman Gary Gensler, who formerly served as the generally pro-enforcement Chairman of the U.S. Commodity Futures Trading Commission, and by the Director of the SEC’s Division of Enforcement (“Enforcement”) Gurbir Grewal, who joined the SEC last year after serving as New Jersey’s Attorney General, and before that, Chief of the Economic Crimes Unit in the U.S. Attorney’s Office for the District of New Jersey.

Enforcement activity since Gensler’s arrival has followed suit.  Despite the operational difficulties that the COVID-19 pandemic has posed for Enforcement, the SEC in fiscal year 2021 brought 434 “stand-alone” actions (enforcement actions excluding those brought against issuers for delinquent filings and “follow-on” administrative proceedings seeking bars against individuals), representing a 7 percent increase over fiscal year 2020.  Enforcement likewise collected $1.4 billion in penalties, a 33 percent increase from fiscal year 2020.  However, the total disgorgement amount obtained by the Division – $2.4 billion – was down by 33 percent.  We believe that this decline is an anomaly and will be reversed in 2022, given Enforcement’s tougher posture and the expanded disgorgement power that Congress gave the agency in last year’s National Defense Authorization Act (“NDAA”).  (See here for our prior discussion of the Act and its implications for Enforcement.)

We expect Enforcement this year to continue executing the priorities articulated by Gensler and Grewal, which we discuss in detail below.

Significant Procedural Changes

In order to streamline and expedite its investigations, the SEC last year reversed some significant procedural changes that it had adopted during the Trump administration.  Last February, then Acting Chair Allison Herren Lee announced that the SEC would be restoring its previous policy of allowing senior officers to approve Formal Orders of Investigation, which empower Enforcement staff to issue subpoenas and take sworn testimony.  The Commission under former Chairman Jay Clayton ended that policy in 2019, requiring the staff to obtain approval from the Commission or the Director of Enforcement, a move that some criticized as hampering the staff’s ability to move investigations along efficiently.  The restoration of decentralized Formal Order authority frees the Division from the “red tape” required by the prior practice and will allow Enforcement staff to move more quickly in gathering evidence.

The SEC also reversed a policy implemented in 2019 that permitted parties to submit settlement offers conditioned upon waivers by the Commission of the automatic statutory disqualifications that result from certain violations of the securities laws, such as the loss of well-known seasoned issuer (“WKSI”) status or ineligibility to conduct private offerings under Regulation D.  The reversal restores the SEC’s previous policy requiring parties to separately submit offers of settlement to Enforcement and requests for waivers to the Division of Corporation Finance or the Division of Investment Management.  The change also suggests a more skeptical view of waiver requests, with the result that settling parties may have a harder time convincing the staff that a waiver is appropriate.  It will also result in greater uncertainty for settling parties, who face the prospect of agreeing to offers of settlement without any assurance of a waiver.

Return of Settling Party Admissions

In October, Grewal announced that Enforcement planned to restore the Obama-era policy of requiring admissions by settling parties in cases involving serious or egregious misconduct.  The SEC has historically permitted defendants to settle enforcement actions on a “neither admit nor deny” basis, whereby the defendant agrees to specific sanctions and penalties without admitting or denying the SEC’s allegations.  The SEC adopted a similar policy in 2013 under former Chair Mary Jo White, but in practice, rarely required admissions, and Enforcement under her successor, Jay Clayton, distanced itself from the approach.

It remains to be seen whether Enforcement will seek admissions more frequently than was the case under White.  If so, this change could have significant consequences for settling entities that face the prospect of private litigation, in which their admissions could be binding.  The possibility may lead more companies to litigate the SEC’s charges rather than accept settlements that would require them to admit wrongdoing.

Harsher Sanctions Forthcoming

The SEC’s leadership has also indicated an intent to make broader use of the remedies and relief in its arsenal.  For one, Grewal reported last year that Enforcement will consider seeking officer and director bars, which prevent individuals from serving as executives or directors of public companies, not only against individuals currently serving in public companies, but also against those who no longer serve in public company roles but might do so again in the future.

Harsher corporate penalties are likewise on the agency’s agenda.  Democratic commissioners (who are currently in the majority) have historically tended to be more supportive of corporate penalties than their Republican counterparts.  Moreover, Grewal has warned that the SEC will pursue higher penalties against companies who violate “a law or rule for which the SEC has previously and publicly charged other actors in their industry[.]”  It remains unclear how this guideline will operate in practice.  Taken literally, it could be understood to include any company charged with a first-time violation that the agency has long pursued, such as misleading disclosure or inadequate internal controls.  Whether the securities laws authorize the SEC to obtain higher penalties under such circumstances, however, is subject to question, and we expect that this approach would invite challenge in the courts if the SEC were to apply it in such a broad manner.

Following the lead of the U.S. Department of Justice (“DOJ”), with which Enforcement frequently works in parallel, the SEC has also communicated a more rigid stance on cooperation credit.  Last October, Deputy Attorney General Lisa Monaco announced that the DOJ would be restoring previous guidance requiring cooperators to provide the government with “all non-privileged information about individuals involved in or responsible for the misconduct at issue.”  This is a stricter standard than the previous DOJ policy, which allowed credit where cooperators identified individuals “substantially involved in the misconduct.”  One week after Monaco’s remarks, Gensler clarified that the DOJ’s new policy was “broadly consistent with [his] view of how to handle corporate offenders.”  Parties seeking credit under this heightened standard will thus face a heavier burden, and may encounter greater pushback from Enforcement with respect to the adequacy of their disclosures, in negotiating deferred prosecution and non-prosecution agreements with both the SEC and DOJ.

ESG at the Forefront

The SEC has in recent years become increasingly attentive to – and concerned about – the rising prominence of environmental, social, and governance (“ESG”) investing.  In particular, Enforcement has been scrutinizing statements by investment advisers and issuers characterizing their investment practices as ESG-compliant.

The agency last year continued to make significant investments in its ESG expertise and capabilities.  In February, it announced the appointment of a Senior Policy Advisor for Climate and ESG.  In March, Enforcement created a Climate and ESG Task Force, with the mission of “develop[ing] initiatives to proactively identify ESG-related misconduct” and using the SEC’s analytical capabilities to “mine and assess information across registrants” to identify potential securities violations.  The Task Force is also charged with the initial task of “identify[ing] any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules,” and will similarly focus on ESG-related disclosures by advisers.  Last April, the Division of Examinations, with which Enforcement routinely collaborates in building its investigations, issued a Risk Alert targeted at advisers, identifying “potentially misleading statements regarding ESG investment processes” and “representations regarding the adherence to global ESG frameworks.”

Together, these developments portend a continued ratcheting up of ESG-focused enforcement activity.  In particular, the allocation of resources to the Task Force is a strong indicator of Enforcement’s belief that issuers and advisers have been falling short in complying with their disclosure obligations and that enforcement action is needed.

Private Funds in the Crosshairs

Enforcement attention on private funds is not new, and the SEC has indicated that they will remain a central focus under Gensler.  The Chairman last year repeatedly expressed his view that the growth of private funds, coupled with what he sees as their lack of transparency, invite more exacting regulation.  In May, he noted in testimony before the House Subcommittee on Financial Services that there has been a 58 percent increase in private equity funds over the prior five years, and emphasized the importance of holding advisers to those funds accountable for violations of the securities laws.  He also observed that Enforcement is focused in particular on disclosure of investment risks, conflicts of interest, and controls around the dissemination of material non-public information (“MNPI”).  Gensler expressed similar sentiments before the Senate Committee on Banking, Housing, and Urban Affairs in September.

In addition, the Division of Examinations last June issued a Risk Alert with respect to advisers to private funds, finding widespread deficiencies in advisers’ disclosure of conflicts, allocation of fees and expenses, and policies and procedures with respect to MNPI.  In January of this year, it issued another Risk Alert focused on private fund advisers, noting conduct inconsistent with disclosures to investors (for example, failure to obtain informed consent from Limited Partner Advisory Committees and failure to comply with Limited Partnership Agreement liquidation terms), misleading disclosures concerning performance and marketing, due diligence failures, and potentially misleading use of hedge clauses.  Given that the Division of Examinations regularly refers its findings to Enforcement, the Risk Alert provides a further signal that 2022 will continue to see enforcement actions arising in these areas.

Continuing Crackdown on the Cryptocurrency and Cybersecurity Front

Cryptocurrency and cybersecurity have been priorities for Enforcement dating at least back to the formation of Enforcement’s Cyber Unit in 2017.  The Division’s focus on these areas has intensified under Gensler, who last August, likened the crypto space to the “Wild West,” and cautioned that the crypto asset class is “rife with fraud, scams, and abuse.”  Accordingly, he has instructed SEC staff to vigorously pursue unregistered sales of digital assets under the Securities Act of 1933 and related misconduct.  Enforcement has been busily carrying out this directive, last year charging promoters of an allegedly fraudulent $2 billion digital asset securities offering; bringing its first enforcement action involving securities using a decentralized finance platform, or “DeFi,” technology; pursuing an operator of an allegedly unregistered online digital asset exchange; and halting registration of two digital tokens due to an allegedly fraudulent SEC Form 10.  The trend has continued into 2022.  The SEC last month obtained a $100 million penalty – the largest in a crypto enforcement action – against a provider of crypto lending accounts for allegedly failing to register its product under the Securities Act or itself as an investment company under the Investment Company Act of 1940, and for misrepresenting the level of risk in its lending business.

Cybersecurity, including the failure of issuers to fully disclose data breaches and of investment advisers to maintain required cybersecurity protocols, remained an Enforcement priority in 2021.  There were multiple high profile disclosure cases, including an enforcement action charging a company with failing to maintain adequate disclosure controls based on allegations that executives were not apprised of a potential vulnerability with respect to customer data or the company’s failure to take steps to address it, and an enforcement action claiming that a public company delayed disclosing and downplayed a 2018 data breach involving customer accounts and student records.

Enforcement also continued to bring enforcement actions for violations of Regulation S-P, otherwise known as the “Safeguards Rule,” which requires registered broker-dealers, investment companies, and investment advisers to adopt written policies and procedures establishing safeguards for the protection of customer records.  Last month, the SEC announced proposed new cybersecurity risk management rules for registered investment advisers, registered investment companies, and business development companies, which, if adopted, will broaden the range of charges available against those entities for cybersecurity and related disclosure failures.  We therefore anticipate that Enforcement’s close scrutiny of cybersecurity practices and disclosures will continue over the coming year.

Insider Trading Regaining Prominence

Historically an SEC priority, insider trading enforcement fell markedly under the Trump administration.  We expect that trend to reverse in 2022.  Grewal set the tone for more aggressive insider trading enforcement in an October 2021 speech premised on Enforcement’s “responsibility to maintain market integrity and enhance public trust in our securities markets.”

Even before Grewal’s remarks, the SEC had begun to push the boundaries of insider trading law in its first enforcement action based on so-called “shadow trading,” a novel theory under which an individual may be liable for trading in the securities of a company to which he or she has no relationship, but whose securities are somehow correlated to those of a company to which he or she owes a duty.  In that case, the SEC alleges that a former executive of a mid-sized, oncology-focused biopharmaceutical company purchased short-term, out-of-the-money stock options in another mid-cap oncology-focused biopharmaceutical company shortly before the public announcement that his company would be acquired at a significant premium, and after learning that the other company’s share price was likely to increase following the announcement.  While the action survived a motion to dismiss in January, further shadow trading cases are very likely to be litigated, and it remains to be seen whether other courts will validate the theory.

The use of “10b5-1 plans,” which provide an affirmative defense to corporate insiders who make predetermined securities trades, subject to certain conditions set forth in SEC Rule 10b5-1, is also likely to attract heightened Enforcement attention over the coming year.  Critics have long contended that 10b5-1 plans can be gamed – allowing insiders to trade on MNPI – by revising or cancelling them, or crafting them to allow trading shortly after adoption of a plan.  Gensler has expressed agreement with these views, noting last June that the plans currently “lead to real cracks in our insider trading regime,” and requested recommendations from the staff for proposed revisions to Rule 10b5-1.  The SEC accordingly proposed a series of amendments to the Rule in December, which, among other things, would narrow the circumstances under which plans may be adopted and require written certifications from directors and officers that they are not aware of MNPI at the time of adoption.  Thus, the new requirements would narrow the circumstances in which a 10b5-1 plan will preclude the SEC from bringing insider trading charges.

SPACs Under Intensifying Scrutiny

U.S. securities markets in 2020 and 2021 saw a surge in the use of special purpose acquisition companies, or SPACs, as an alternative method for taking a private company public.  A SPAC is a shell company with no operations created for the sole purpose of raising capital through its own IPO so that it can acquire or merge with a privately held company.  Gensler last year repeatedly expressed concern about insufficient disclosure of the conflicts of interest inherent in, and the dilutive effects of, SPACs, among other aspects of these deals.  He has called for recommendations to address these risks, and publicly called upon Enforcement to continue its focus on SPACs.

Last July, the SEC brought its first enforcement action against a SPAC, charging the target of a SPAC transaction with misrepresenting the success of its technology and the likelihood that it would secure necessary governmental approvals, and the SPAC itself with repeating those misstatements to investors while overstating the due diligence it had conducted on the target.  While the frequency of SPAC transactions has fallen significantly since last year, the proliferation of these deals in recent years, along with Gensler’s instruction that Enforcement prioritize SPAC investigations, suggest that more SPAC-related enforcement actions are likely in 2022.

Whistleblower Program Will Continue to Drive Enforcement

The SEC’s Whistleblower Program has continued its dramatic expansion in recent years, providing powerful incentives to employees and other whistleblowers with headline-making awards.  The Program had a record-breaking year in fiscal 2021, during which the SEC awarded approximately $564 million to 108 different individuals, representing the largest dollar amount and the largest number of award recipients in a single fiscal year.  Last year also saw the two largest awards in the program’s history, including a $110 million award in September and a $114 million award in October.  To date, the Program has awarded over $1 billion since its inception in 2012.  We expect that Enforcement will continue to enthusiastically leverage the Program as a source of enforcement actions yielding large disgorgement and penalty amounts.

In addition to ratcheting up the size of whistleblower awards, the SEC is poised to reverse controversial changes to the Whistleblower Program rules made under the Trump administration.  In 2020, Republican commissioners approved amendments and interpretive guidance which, among other changes, (1) made actions brought by another agency or regulator ineligible for SEC whistleblower awards in cases where the Commission determined that the other agency or regulator had a whistleblower program that “more appropriately” applied to the action, and (2) effectively gave the SEC discretion to reduce the amount of the largest awards based on their dollar amounts.  These changes drew vigorous criticism from Democratic commissioners and the plaintiffs’ bar.  Last month, the SEC announced two proposed amendments that would largely undo the Trump-era changes by expressly authorizing awards where the other whistleblower program would result in a significantly lower award than the SEC would pay, and by limiting the Commission’s discretion to consider the dollar amount of an award only to increase, not reduce, an award.  The proposed amendments underscore the Gensler Commission’s aim of incentivizing whistleblowers to report wrongdoing as well as the continuing importance for companies to have effective internal processes for reporting and investigating potential misconduct.

We will continue to follow and provide updates on Enforcement activity and priorities throughout the year.

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