Clarksville Times

Today, the House Financial Services Subcommittee on Capital Markets, led by Chairman Ann Wagner (MO-02), is holding a hearing entitled, "SEC Enforcement: Balancing Deterrence with Due Process."

"I would like to thank you all for joining us today. During today’s hearing, we will examine ways to improve the Securities and Exchange Commission’s (SEC) enforcement function, which must strike the right balance between deterring and punishing securities fraud, preserving due process rights, and protecting the interests of those who rely on our markets to invest and save for their retirement. To ensure that our markets remain the envy of the world, it is critical that the Enforcement Division gets this balance right. Since 1972, the Division has been responsible for investigating and prosecuting violations of the Federal securities laws—both in federal court and in proceedings before Administrative Law Judges. Its efforts to deter and punish wrongdoing are designed to help the Commission protect investors and maintain fair, orderly, and efficient markets. The same efforts should instill confidence in our markets and encourage everyday Americans to safely invest and save for their retirement. Our capital markets benefit from an Enforcement Division that is equipped with the tools to detect, punish, and prevent fraud. But, the Division’s current trend of ‘regulation by enforcement’ harms market participants by implementing policy changes that are not subject to the Administrative Procedure Act’s notice and comment requirements. We will also explore how proceedings before Administrative Law Judges may infringe on due process rights, and how the Division’s ‘gag rule’ may restrict free speech. I want to be clear: our goal is not to restrict access to important investigative tools. Instead, our goal is to protect the due process rights of all market participants, increase accountability and transparency, and enhance public trust. Under Chair Gensler’s heavy-handed leadership at the SEC, these goals are now as important as they have ever been in the agency’s roughly 90-year history. Even the SEC’s own Director of Enforcement has recognized their importance. In a speech before the New York City Bar Association Compliance Institute last year, Director Grewal conceded that ‘public trust in our institutions is faltering.’ Based on the Commission’s recent actions, however, the public’s trust in the SEC will only decline if the problems we highlight today aren’t addressed. For example, public trust in the SEC will only decline when its employees are sanctioned and forced to resign for their ‘gross abuse of power’—as they were in the recent case against the crypto platform known as DEBT Box. During that case, SEC attorneys made false statements and misrepresentations against a defendant in court. These actions are extremely concerning to Members of this Committee, who recognize that cases should never be handled in such an unethical and unprofessional manner. Likewise, public trust in the SEC will only decline when its staff pursue ‘shadow trading’ enforcement actions or engage in off-channel communications sweeps that consider each of a company’s unarchived WhatsApp messages a separate violation of the securities laws. Finally, public trust will only decline when market participants cannot share truthful information related to their settlements, or when SEC staff act as both the prosecutor and judge in cases seeking millions of dollars in penalties. The areas we intend to focus on today involve matters of fairness, transparency, accountability, and trust. Every Member of this Committee should be concerned when market participants lose confidence in their regulator—especially when that regulator’s job is to instill faith in our markets. I would like to thank our witnesses for their testimony, and I look forward to our discussion."