SEC Acknowledges Mistakes in Enforcement Proceedings, Introduces Compulsory Staff Training for 2024
The U.S. Securities and Exchange Commission (SEC) has made a noteworthy admission regarding mistakes made during a recent enforcement proceeding. In an unusual move, the regulatory body expressed “serious and deep regret” in a new filing, signaling its commitment to rectify these errors and prevent future occurrences.
During a hearing on July 28, 2023, SEC counsel made statements that were later found to be inaccurate, and the Commission’s attorneys failed to immediately correct these inaccuracies. Additionally, the SEC admitted that certain assertions were based on inferences rather than direct factual evidence.
To address these shortcomings, the SEC has announced comprehensive corrective measures. The Enforcement Director has appointed senior attorneys from the Denver Regional Office to oversee the matter. Furthermore, an experienced trial attorney from the same office will lead the litigation team to ensure a higher standard of oversight and accuracy in proceedings.
The most significant measure taken by the SEC is the scheduling of mandatory training for all Division of Enforcement staff. This training, set for January 2024, will emphasize the critical importance of accuracy and candor in investigations and litigation, as well as the duty to promptly correct any inaccuracies that arise.
Despite the mistakes made, the Commission firmly stated in its filing that sanctions are not warranted. The SEC argues that the circumstances do not align with the misconduct that Rule 11 aims to address, and there is no evidence of bad faith conduct that would justify sanctions under the Court’s inherent authority.
The enforcement case began in March 2023 and was led by staff attorney Joseph Watkins, who joined the Commission in January of that year. Watkins was supported by Laurie Abbott, a staff attorney since February 2016, and financial experts Karaz Zaki and Mitchell Davidson, both with extensive backgrounds in the Commission’s Division of Enforcement.
This development comes at a time when the SEC is actively cracking down on investment fraud and other malpractices in the financial markets. The Commission’s proactive approach in acknowledging and rectifying these internal errors is seen as a positive step towards maintaining high standards of regulatory oversight, particularly in the rapidly evolving landscape of financial markets.