SEF D.C. -- The Day After: The Impact of the Election on SEC Enforcement

Here is a transcript from the post-election panel at the recent Securities Enforcement Forum in Washington, D.C. The panelists were:

• Anita Bandy, Partner, Skadden

• William McLucas, Partner, WilmerHale

• Juan Migone, Partner, StoneTurn

• Nader Salehi, Partner, Kirkland & Ellis

• William White, Partner, A&O Shearman

You can find the video here and the full agenda here.

00:00 - 00:46

Bruce Carton: I've been looking forward to this panel and it is called the day after the impact of the election on SEC enforcement. And our moderator is Anita Bandy, a partner at Skadden in Washington, D.C. Prior to joining Skadden, Anita served for 17 years at the SEC's Enforcement Division, where she held a number of leadership roles, including being an Associate Director. Welcome, Anita. To her left, Bill McLucas. I threaten every year that I will give no introduction for Bill, but I always give up and give one. But Bill is a partner at WilmerHale in DC, previously served for more than eight years as director of the SEC's Enforcement Division, longer than any other director in SEC history. Welcome Bill.

00:46 - 00:47

Bill McLucas: Thank you.

00:48 - 01:26

Bruce Carton: Next up, Juan Migone, partner at Stone Turn to Washington, DC. He leads teams on complex forensic accounting and investigative matters and Juan spent nearly 20 years at the SEC serving in a variety  of roles, most recently assistant chief accountant in the office of the chief accountant. Juan, great to see you, welcome. Next up, Nader Salehi,  partner at Kirkland & Ellis’s  Washington DC office. Nadir also previously served as counsel  in the SEC's Division of Enforcement. And, Dara, welcome back. Great to see you. And finally, Bill White, partner at Allen & Overy, actually I should say A&O Sherman, sorry,

01:26 - 01:37

Bruce Carton: in its Washington, D.C. Office. He previously served for 8 years in the Enforcement Division as a Staff Attorney, Branch Chief, and Senior Trial Counsel. Bill, great to see you, welcome, and Anita, let me turn it over to you.

01:37 - 02:07

Anita Bandy: Thanks so much, Bruce. I was joking with Bruce that I need to, I feel like I need to start the discussion with a shot of vodka or at least a Bloody Mary, But look, all kidding aside, I think there's one thing that's certain based on the events of the last 24 hours, that there really is no uncertainty to who will be our next president, and there's certainty that there will be a change of administration at the SEC. So I think the big question that we're all talking about and wondering about is the one that I think

02:07 - 02:28

Anita Bandy: we should start at the top of the hour with is, you know, what does a Trump two administration at the SEC look like? You know, Can we look back to Trump one as a guide for what we may expect during Trump 2? And I'd like to ask each of you for your thoughts on that. So Bill, let's start with you.

02:29 - 03:16

Bill McLucas: Was there an election? I was watching ESPN last night. I missed something, but yeah, look, who knows what the change is gonna be other than there will be a change. I think looking back to the first term, probably not a great guide. We don't know what has been in the planning with respect to the 2025 project or whatever it's called. And I suspect that when this administration hits the ground, there may be an entire framework set forth for a whole host of government agencies, including the SEC. Much will depend on who the chair is. And last

03:16 - 03:40

Bill McLucas: Trump administration, he had probably one of the most spectacular appointments of his entire term as chairman with Jay, and who knows what will happen this time. Other than there will be change, it will certainly implicate enforcement, rulemaking, we can talk about that in a few minutes, but it's gonna be dramatic, and the shape and details, who knows?

03:42 - 03:58

Juan Migone: Yeah, I'll second that. I mean, ultimately, who is appointed as the chairman is gonna dictate how the SEC mission is executed. And I think as well, like who they appoint as the director of enforcement is gonna have a huge impact on the program.

04:00 - 04:28

Nader Salehi: Yeah. So not much to add. I mean, we know there's going to be, as Bill said, change. We know the SEC is going to turn right. I think what we don't know is it going to be a turn right along the lines of a traditional change to a Republican administration. Or are we going to see a change all the way right, hard right turn where, and I don't mean right in the political sense, but in the sense that you bring, you have a chairman who comes in not just with a desire to adjust the policy to

04:28 - 04:52

Nader Salehi: a more conservative framework, But rather somebody who comes in and Bill's been looking at this and can talk a little bit about it, to make some of the fundamental changes that you see in Project 2025 where they say it's not about just changing the policies, but we're gonna get under the hood and really start changing the way the enforcement division works and adjusting the process and imposing deadlines. And I think we don't know the answer to which of those is gonna happen and we won't know until we know who the chairman is.

04:54 - 05:43

Bill White: Yeah, one of the points that Bill made, I think is really important, which is the, I'm not sure to the extent that the Trump administration has planned to take over any department of the government, including the SEC. CNN reported last night that there was, Trump had no remarks prepared to deliver in the event that he had won last night. And that's one of the things that delayed him going out. So I'm not sure. I think we're going to get something in the next month plus, which may resemble Project 2025, may resemble the agenda that some of the SEC Republican commissioners currently have been talking about. Maybe a little bit of what happened before, but a lot is going to depend on who the chair is.

05:44 - 06:23

Anita Bandy: Yeah. So, before we talk more about, you know, specific areas of the enforcement program, I think it might be helpful to discuss just a few points on process and mechanics. Before a new chair takes over, which could go much more quickly given what we saw happen to the Senate. The confirmation could go much more quickly. But before we get to what happens to specific areas of the program, during many of our times at the Commission, we've lived through the changing of the guard and the period of transition. And I want to focus our attention on the

06:23 - 07:06

Anita Bandy: period of transition. When you're waiting for a front office in the division to take shape, there could be a 3- or 4-person commission. There's a host of senior officer vacancies, vacancy throughout the division. So what are some of the operational changes that we can expect during the period of transition to the new presidential administration? What can clients, what can folks expect in terms of this transition period? And it might be helpful to just kind of talk basics, like what's the role of an acting chair? What's the role of an acting director of enforcement? What are short-term implications for what gets calendared and what doesn't. So let's talk process and mechanics. Maybe Bill, we can start with you.

07:06 - 07:46

Bill McLucas: So the president-elect's made it clear that he would quote fire Gary Gensler. Whether he can do that or not is an open question after the PCAOB free enterprise case a few years ago. But he can certainly appoint an acting chair and nominate a permanent chair. An acting chair would likely be one of the Republicans. It's unlikely that the existing chair would step back and remain a commissioner. I mean, possible, but for the most part, the chairman would resign upon a new administration. That will give us a two-two, our Republican-Democrat deadlock. I think in the interim

07:46 - 08:26

Bill McLucas: between here and there, you're gonna see cases that the staff may be worried about. Tough case, maybe an internal controls case, a la SolarWinds, and they're worried, we get this approved. There's gonna be a push to move cases in those areas and I don't know what all they may entail. Once, if we have a two-two deadlock, pending the appointment of a permanent chair, I think you'll see a dramatic change in the kinds of cases. I don't think you're going to see the kinds of penalties, the kinds of theories that we've seen in the last few

08:26 - 09:07

Bill McLucas: years. I don't think the staff is going to be able to get through aggressive approaches. And that goes across the board. The texting cases and the size of those penalties, that's not gonna happen, I don't believe. So, those are some of the things, The areas of program areas where it might have direct impact, I really don't know. I don't think you're going to see creativity and aggressiveness. You're going to see much more discipline, I think, in tethering the theories and the facts to the law, and the guide for that would be to read Hester Peirce's dissents in some of the cases.

09:09 - 09:47

Anita Bandy: Yeah, I agree with that. I mean, I think during my time at the commission, it was what are the parts of the program that have strong bipartisan support. How do we keep the trains moving and get the votes on things like insider trading, FCPA, egregious Ponzi schemes, investor protection cases, things that have bipartisan support, I think, will be the goal in terms of moving the trains on the enforcement docket. But, you know, let's talk a little bit about just broader shifts. I mean, you know, regardless of political party, I mean, typically no chair wants to be

09:47 - 10:32

Anita Bandy: perceived as reigning over a weak enforcement administration. Some argue that we saw a greater shift in terms of, you know, policy priority areas under Gensler than under the prior Clayton administration. Let's not forget that the prior administration brought Ripple, brought the Tesla case. Are we gonna see more of a, what do we think happens in terms of sort of shift in terms of the program areas? Are we gonna see more of a shift from Wall Street to Main Street, sort of back to Mr. and Mrs. 401(k)? What do we expect in terms of the program area? And I don't know if Juan or Nader, you guys wanna comment on that?

10:35 - 11:07

Nader Salehi: Sure, I'm happy to start. I mean, I think again, it sort of depends on whether we see a chairman come in who is much more of a traditional mold of a, say, Jay Clayton, or do we see someone come in who's gonna be very much in the mold of somebody who wants to fundamentally alter the way the agency works. But assuming we get sort of a more traditional Republican SEC chair, I think, look, as you said, there's plenty of cases that the SEC has fought and can bring that don't really present significant policy issues. Like insider

11:07 - 11:42

Nader Salehi: trading cases, financial fraud cases, misstatement cases, there's a lot of them out there. And so I fully expect, again, as you said, if we have a traditional Republican administration, We're gonna have an active enforcement division that's gonna be bringing cases that are probably not presenting significant policy issues. What I think is gonna fall by the wayside, and Bill alluded to this, are gonna be cases that really present significant litigation risks, significant policy questions, and raise significant questions about the role of the SEC. And when you look at some of the cases the SEC has brought recently,

11:42 - 12:14

Nader Salehi: I think they implicate those questions, and we can talk more about it, but there are lots of internal control cases that I think have been brought that perhaps wouldn't be brought. I think there are cases that involve ESG issues that perhaps wouldn't be brought. But there are also gonna be plenty of cases. I think we're gonna have, unless you have a chairman who's, again, somebody who's committed to sort of dismantling the agency, and I think there's still a possibility of that. But if you don't have that, I think you're gonna have an active enforcement division. It's just they're gonna be focused on bringing cases that are not really presenting policy issues.

12:15 - 12:50

Juan Migone: I agree with that. I mean, ultimately, we discussed this a little bit. From an accounting perspective, there's still those bread and butter accounting investigations. So the aggressiveness of the staff with regard to what is GAAP or an interpretation of GAAP by the staff is gonna change. And so there's gonna be a lot of, at least the accounting staff that's gonna wake up today and say, what's on my docket? And what can I pass through to the next administration? Or what do I need to try to get through the current administration before there's a change?

12:50 - 13:18

Nader Salehi: I mean, just to follow up on that, we were having a chat earlier this morning. I mean, so when you look at accounting cases, there are gonna be accounting cases where the staff's gonna develop a record that shows somebody acting in a manner inconsistent with, you know, clearly articulated GAAP principles. Those cases will still be brought. Nothing's gonna change. There's plenty of those cases out there. There are also cases that are in the pipeline now where you might have something to which authoritative GAAP does not speak. And you have a company that took a reasonable approach.

13:18 - 13:30

Nader Salehi: And then you have an SEC staff that says, well, we think a different reasonable approach makes sense. And I think that's the type of case where maybe it gets brought under a Gensler administration, probably doesn't get brought under a different administration.

13:30 - 13:31

Juan Migone: I agree, yeah.

13:31 - 14:09

Bill White: Yeah, and I do think, as Nader said, unless you're going to close the doors on the place, you still need a docket of cases, and there's a lot that have bipartisan support. I think there's going to be a shift to some degree to perhaps Wall Street a bit more than has been away from ESG, away from crypto. But things that people can point to, the administration can point to, to show that they're being tough on wrongdoers. And I think the banks, I think are gonna come back into. You think the texting cases don't show that?

14:09 - 14:12

Nader Salehi: That's not being tough on wrongdoers?

14:12 - 14:38

Bill White: I don't think, were they wrongdoers is a good question, and how much, but I don't think you're going to see cases like that coming out of no matter who it is on the Republican side. But I do think there's going to be an effort to find cases that are going to make the chair, the commission, the Trump administration look like they're taking action to help ordinary people?

14:39 - 15:04

Juan Migone: And part of the mission, I mean, you talk crypto, part of the mission of the SEC's capital formation, right? So the current enforcement stance on crypto has a tendency to go against that policy and that mission. So is the Trump administration going to be more open to maybe blockchain markets and different areas of crypto that would help in the mission of capital formation in the United States.

15:05 - 15:53

Anita Bandy: Yeah. So let's shift to Project 2025. I think we'd be remiss if we didn't discuss these conservative policy proposals that we've been hearing about over the campaign trail and Project 2025's potential impact on the SEC. There's several notable proposals that we've heard about including statutorily limiting the time for the SEC, SEC investigations to a two-year time period with no extensions, eliminating all administrative proceedings within the SEC except for stop orders relating to defective registration statements, some of that the Judiciary has already spoken about. Revamping the federal bureaucracy so that more jobs are filled with political appointees

15:53 - 16:29

Anita Bandy: under Schedule F. Interestingly, this could potentially go all the way down to the assistant director level, positions that are typically held by career public servants. And, you know, these are positions that usually are somewhat impervious to political dynamics. So what would be the impact, Bill White, let's start with you, in terms of Project 2025 and some of these proposals on the SEC, including the Division of Enforcement, how would it impact the way the division operates? What can we expect there?

16:29 - 16:46

Bill White: The real answer, I think, is we're not entirely sure because everybody knows the Trump Trump and his campaign disassociated themselves from project 2025 and it's just unclear whether that is the blueprint of the Heritage Foundation or it's the blueprint of the Trump administration.

16:47 - 16:49

Bill McLucas: You want to take a bet on that?

16:49 - 17:24

Bill White: So I do think there's a number of things in Project 2025 that are going to get some traction. And it talked about a couple of them. The statute, we weren't sure as we prepared for this which direction the election was gonna go. And one of the things I was gonna say is on project 2025 is even in a Harris administration, I actually do think some form of time limit on SEC investigations was going to get some traction. So I think that will get some traction, whether it's a statutory fix, or whether the new chair decides

17:24 - 18:06

Bill White: to get ahead of it with either rulemaking or just policy pronouncements. But I do think there's a very good chance that that is gonna get some traction, probably not as the absolutist way it's expressed, which is no exceptions. It's probably gonna look more like the Speedy Trial Act, where perhaps the Commission can, the person being investigated or the entity being investigated can waive or the Commission can make a finding to extend the time. But I think that's a real possibility. The other one to me, well, administrative proceedings I think is sort of a done issue.

18:06 - 18:41

Bill White: I think it's probably gonna happen. The staffing issue, which isn't just limited to the SEC, it's broader throughout the government, is pushing political positions down lower than they currently are. I do think we're gonna see some of that. I don't know if others have views. I don't know it's gonna go all the way to assistant director, but I do think the question is, again, we keep going back to this, but who's the chair going to be, then who's the chair going to appoint as the director of division of enforcement? And then does that person want to go

18:41 - 18:48

Bill White: a layer or two layers below and put in people and sort of knock out the community people. Yeah.

18:48 - 19:01

Anita Bandy: Bill, what is that? I mean, I wanna sort of ask you, I mean, having been director, I mean, what kind of, what is the impact on the Division of Enforcement if assistant directors are now political appointed figures?

19:02 - 19:45

Bill McLucas: I mean, if I had to look at the laundry list of things that have been mentioned, the one potential change that could have the most dramatic impact on the SEC and its functioning is this, we're gonna throw out the OPM guidelines and we're gonna put political appointees and people that one would call loyalists in all these positions. That to me raises the largest big question about what does that mean? How will that work? What does it mean to have loyalists? I actually believe that we have elections, somebody else is in charge, most people in the federal

19:45 - 20:23

Bill McLucas: government get in line and do their jobs. The question is what does do your job mean? And does it mean hew to the statute and to the public interest, however that's perceived, but do it in a way consistent with what the law is, what your ethical duties are. That's the big dynamic and the big question to me that is uncertain, and I don't know how far down that concept may be advanced or pushed. I don't think it would be dictated by the director and the chairman. If the characterizations of 2025 that we've heard are true, that

20:23 - 21:10

Bill McLucas: would be dictated from 1600 Pennsylvania Avenue. And that's something that is worrisome. One analogy I can give you, and I'll date myself, but I was a young lawyer at the SEC in 1980 when Reagan was elected. And whatever sense the workforce had about Trump, believe me, it was similar when Reagan was elected in 1980. The transition report that had been delivered to the White House recommended the entire enforcement division be disbanded and the enforcement lawyers dispatched all the regional offices. That didn't happen, but the first few years of the Reagan administration was a dramatic change in

21:10 - 22:01

Bill McLucas: the focus of enforcement. What changed, and what I think we probably can all take some solace in is fraud and bad guys don't go away. In the 80s, you had the insider trading scandals and the M&A activity that literally exploded the SEC’s profile, its role, and the Division of Enforcement, the support for the agency, not just in the government, but publicly. And whatever we see happen at the SEC, if the staff sticks to their guns and does their job, things ought to eventually hit an equilibrium where things are fine because, As I said, it's not like

22:01 - 22:41

Bill McLucas: there's gonna be some development where people aren't involved in stealing money, cheating. We don't know what's gonna happen in the cyber area. Cyber regulation is gonna change one way or the other. The whack-a-mole enforcement approach isn't working. It's a $3 trillion market. You gotta figure out is there a regulatory regime whether you like it, you don't like it. What's the answer? It can't be to sue everybody in every product where you think we don't like this feature of the product. So I, you know, Crypto I meant to say, crypto. But I actually think this is gonna

22:41 - 23:06

Bill McLucas: take time. You gotta see what the staffing looks like, who the chair is, what the director is. But as I said, fraud and people cheating and people stealing money, it's sort of endemic to our free markets. And because of that, we will be in a position at some point where any worry about, oh my god, they're gonna dismantle the agency, that's not gonna happen.

23:08 - 23:41

Anita Bandy: Yep, well said. Any other thoughts before we move on to specific program areas? I wanna, you mentioned fraud. Fraud's always gonna exist, but one of the things, I think one of the hallmarks that we've seen in the last couple of years are a lot of cases where controls, internal controls has been more of a focus, internal controls has been leveraged. There was discussion about that on the last panel. In different parts of the program, right? Not just cyber security, we've seen that used in social and governance, ESG related cases, you know, McDonald's, Activision, or cases that

23:41 - 24:18

Anita Bandy: are benchmarked to rulemaking priorities, you know, charter communications, share repurchase case, these are all more controls focused with higher penalties. Nader, I wanna start with you because you've handled so many of these cases, both on the public issuer side as well as on the IA side. Do you think there's gonna be a rollback in terms of the focus on controls, a shift more towards fraud, a shift more towards something greater, and what does that mean, and then is there going to be a proportionality to penalties, you know, controls case that are, that have very high penalties,

24:18 - 24:23

Anita Bandy: almost reflective of conduct that's worse than controls. And so, can you speak to that?

24:25 - 25:00

Nader Salehi: Sure, absolutely. I mean, look, I do think there's gonna be a rollback. I think what you're gonna really stop seeing is some of the standalone control cases where you don't have an obvious articulated harm, but you have sort of a control system that the staff comes in, often with the benefit of hindsight, holds to the standard of reasonableness as they see it, finds it deficient and lacking. It's very hard to defend those cases. It's very hard, unless you're prepared to actually litigate. It's very hard to litigate those cases because it's a mixed question of law and

25:00 - 25:29

Nader Salehi: fact in most cases. And so the staff has, I think, been able to achieve settlements that it probably is unlikely to be able to achieve and is unlikely to seek in a Trump administration. So I think that's true in the public company context. I think we've seen these cases. I mean, I think you observed earlier, we've seen cases like this brought under Republican administration. It's not like we haven't had controls cases under Republican administrations, but I think you've had.

25:29 - 25:30

Anita Bandy: Like Endeavor, Endeavor is

25:30 - 26:08

Nader Salehi: a good example. Endeavor, exactly. Exactly, but I think what you've seen is a massive expansion of that in both the public company context, where we had the charter communications case, which I handled, and then we've also seen it, most recently, in the investment advisory space. The Marathon case, which I was also involved with, you know, where you had the SEC come in, the sort of no showing of a fundamental underlying breakdown. There is an assessment by the staff that the control system is unreasonable as they see it. Companies aren't able to really fight that, and so

26:08 - 26:33

Nader Salehi: the staff is able to achieve an outcome that I think it wouldn't otherwise be able to achieve. I think those cases are gonna really, really slow down, and when they happen, I hope and expect you'll see penalties that are very different than what we've seen in the last few years where, you know, again, obviously personal bias here, but $25 million on a standalone controls case, it's a huge penalty. It's a huge penalty regardless of the size of the respondent. And I hope and expect we see a lot less of that.

26:33 - 27:08

Anita Bandy: Do you think that there's gonna be more willingness to litigate? There's been some judicial pushback, even on controls cases, you know, virtue was litigating, you know, but IAs always have to worry about collateral consequences, the risk that an injunction is imposed and what that means if you're a registered entity. That said, virtue is litigating. I mean, do you think, where do you see litigation? Do you think the SEC takes less chances in litigation? Do you think that there's parties that are gonna be more likely to litigate on controls?

27:10 - 27:43

Nader Salehi: I do think that you're gonna see people being willing to litigate more. I think that there's a bit of a loss of stigma associated because of what's happened over the last few years. It used to be that for many companies, if you litigated with the SEC, that was a death knell. You couldn't explain to your board, you couldn't explain to your investors. I think it's become easier to explain that people can achieve better outcomes through litigation. And so I think the more you see litigation happening, the more you see opinions like the SolarWinds opinion, I think

27:43 - 28:00

Nader Salehi: people will find it easier to explain to their boards and to their constituencies why litigation is an option they should seriously consider. And I think you're gonna see the SEC under a Trump administration less likely to pick cases that people will fight. And I think they're gonna look for more down the road.

28:00 - 28:00

Bill McLucas: Part of the issue with regulated entities will be if you get a different approach on  even if you believe you've got a 70-30 probability of winning, that 30% downside is enormous if you fear the staff's gonna use the collateral consequences to put you out of the managed funds business. So if those things change a little, then I think you're gonna see more regulated entities, big banks, big investment banks, prepared to take on some of these theories, which is why I think some of the theories they're gonna pull back on.

28:39 - 28:44

Anita Bandy: More willingness for IM to grant 9A waivers. There may be.

28:44 - 28:45

Bill McLucas: Right. I mean, when you think about it, the merits become less relevant when your assessment is can I risk basically being shut out of business because of a collateral consequence?

28:57 - 29:37

Bill White: Right. Right. I think that'll keep being the main thrust for regulated entities. one of the things that goes into the mix though is I do think over the last eight years the federal judiciary, which will be the only place these cases are handled, has changed. The traditional path to federal judgeship involved being a prosecutor and sort of having that bent. That was not fully the case in Trump's appointments. His appointments didn't completely follow the mold. There's some, but, and then I actually think that continued on with the Biden administration, where there were a lot of more

29:37 - 29:57

Bill White: appointments that weren't just that sort of prosecutor mindset. So, you might be looking to see, what do you get for a judge? Who do you get for a judge? And how might it come out? Although, again, for regular identities, I think you end up going through that analysis and you're still stuck at settling, at least in the current environment.

29:58 - 30:40

Anita Bandy: Yeah. Let's move to a different area of the program that's been a real focal point of the current administration, which is ESG. Earlier this year, the SEC chose to stay the newly adopted climate rules that's pending before the Eighth Circuit. We've heard reportings that there's the dissolution of the climate in ESG task force within the Division of Enforcement. And then there's also social and governance issues. There's the NASDAQ board diversity rules that have also been adopted. So there's climate as well as social governance in terms of focal points of this administration. Despite climate somewhat being halted,

30:40 - 31:30

Anita Bandy: we've seen enforcement using its existing authority to certainly highlight its priority in this area. Recently we saw the Keurig Dr. Pepper case being filed for inaccurate statements regarding the recyclability of K-cup single-use beverage pods. And we've talked about social governance issues like Activision, McDonald's. There's a recent board independence case that came out. This is an area where some have questioned issues of materiality in terms of does this matter from an investor protection standpoint, from a materiality threshold perspective? A real, I think, political issue that we've heard the Trump administration push back against. And so is this

31:30 - 32:07

Anita Bandy: an area where we can expect to see a real rollback? I mean, or do we think the judiciary is gonna, the issue gets played out by the judiciary as opposed to a new Commission coming in and completely rescinding the rules as what we saw quite frankly with this administration and the proxy advisory rules, right? Like under the Clayton administration, that was a promulgated rulemaking that this current Commission completely just came in and rescinded. And so are we gonna see some of that take place with ESG, cybersecurity, other rule-makings. So any thoughts on that? Maybe Juan, we

32:07 - 32:10

Anita Bandy: can start with you and really invite everybody to share thoughts.

32:11 - 32:47

Juan Migone: Yeah, I mean, in terms of the ESG rule-making, I would be a little concerned about that rule being rescinded, It specifically indicates that you don't have to make Scope 3 emissions, disclose Scope 3 emissions. Now, you have a regulatory body in Europe and certain states that are requiring certain disclosures. So with that exemption not being there, to the extent you make disclosures in Europe or to certain state regulatory bodies, are you gonna have a requirement to then disclose that in your own filings? Is that gonna be like a Reg FD violation if you don't? So that's

32:47 - 32:57

Juan Migone: where I'm concerned from the ESG rulemaking perspective, more from the company side. What am I going to actually have to disclose? Because I have made disclosure in Europe or elsewhere.

32:58 - 33:26

Nader Salehi: Nader? Look, I think when it comes to ESG, sort of on rulemaking, I think there's gonna be a fundamental change. And I think whether it happens because the agency chooses not to pursue some of these initiatives or because the courts force them to, I think we'll see. But either way, there's gonna be a fundamental shift. I think on the enforcement side, there's also gonna be a shift, but I don't think it's gonna be as fundamental in the sense that, look, you're still gonna see what people call greenwashing cases. I think they're just gonna be labeled, you

33:26 - 33:44

Nader Salehi: know, false statement cases. Like, you're gonna see cases where, you know, people have made statements on issues of ESG or other matters that investors take seriously, and then investigations show that those sort of statements weren't truthful. And so I think those cases will continue to exist.

33:44 - 33:45

Anita Bandy: Like Volkswagen. Volkswagen wasa prior administration case.

33:46 - 34:24

Nader Salehi: Exactly. But I do think that there are going to be cases like the current case that aren't going to be. I mean, I hope and expect, and I'm involved in that case, that those cases won't be brought. Because to me, that's a stretch case. And I think that's exactly the type of case where a different administration could look at that and say, I'm not sure that protecting investors as part of the mission statement of the SEC involves understanding whether two states really did or did not think these K-cups were commercially feasible as a recyclable item. I don't know if that's the case. Bill, you look like you were gonna disagree with me.

34:24 - 35:13

Anita Bandy: No, no, not at all. I was just gonna move to cryptocurrency. I don't think this panel can get away from talking about digital assets, which has been a huge priority, top priority for this administration. While we've also heard Trump openly talk about wanting to declare the United States as the crypto capital of the world. And so, very different tenant. You know, we also have been waiting for more guidance on exemptive authority legislation, whether the authority is gonna reside with the SEC versus the CFTC. Recently, there's a crypto firm that utilized a lesser known rule that allows

35:13 - 36:02

Anita Bandy: a market participant to ask the CFTC and the SEC through a declaratory action, whether a product is a swap, a security-based swap, or a mixed swap, and kind of forcing the agency's hand to issue some interpretive guidance. So are we gonna see more proactive litigation as we wait for legislative action? Are we gonna see a rollback? What are thoughts? And should these crypto platforms really be following standards that fall under AML, Bank Secrecy Act, those parts of enforcement bodies. So I'd love to elicit views from the whole panel. I mean, maybe Bill, we can start with you in terms of crypto.

36:02 - 36:41

Bill McLucas: Look, I can understand the number of the SEC's cases, the product fits within the Howey definition, it's a security. The problem is that can't be the solution because whether you like crypto or you don't like crypto, it's not going away. The enforcement cases that have been brought are what they are, but they keep bringing them, and we keep seeing crypto products. So the likelihood whether whomever won the election, there's gonna be a change in my view in the approach to crypto and it's going to have to involve a rule proposal with regulatory responsibility residing either in

36:41 - 37:27

Bill McLucas: the CFTC or the SEC and notice and comment and the regime being whatever it's going to be. There is a risk. There's a huge issue here about money laundering, tax evasion, terrorist financing. That's not de minimis. It is very real. And I think that the challenge for the government is what's the regime, how do you worry about all those things, impose the appropriate know your customer standards, and deal with this emerging industry. I think we've lost a couple of years by doing it by enforcement, but that's where we are today and I think that's where this thing's gonna go.

37:29 - 37:30

Anita Bandy: Yep, Juan.

37:30 - 37:34

Juan Migone: I fully agree, I mean, I can't state it any better than he just did.

37:36 - 37:52

Nader Salehi: Yeah, I mean, I would just echo Bill's comments. I mean, I think there's the question of who's going to have the responsibility. I think we all agree somebody needs to. And I think that crypto is not going away and nor is the fraud that's gonna potentially occur in that market. So we do need clarity on who's gonna regulate it.

37:53 - 38:25

Bill White: And I think that's gonna take some time. That's not, I don't think, a January 20th thing. It is always the possibility of some sort of executive order, but I don't think that's the way this is likely gonna go. Those things have to get hashed out. It's gonna take a little bit of time, but one of the things, just from going away from the SEC and just looking at the politics of the situation, it's rare that one industry has sort of gone all in on one side in the election as they did here in the crypto industry.

38:25 - 38:45

Bill White: And so I think there's gonna have to be some progress. I think it's gonna take some time, but they're gonna have to show some progress to getting to where folks said they need to get to, either by rulemaking or whether there needs to be some legislation first and then the rulemaking, which probably would be the smart way to do it.

38:45 - 39:21

Anita Bandy: Yeah. Let's spend some time talking about corporate penalties. I mean, we've touched on the topic, but we've talked about, we've seen really record-breaking penalties, often for controls or more technical violations. And I think that applies both to the IA side as well as the public company side. What do we expect to see in terms of corporate penalties? Typically that is an area where we have seen a marked difference, administration to administration. So Bill, maybe let's start with you in terms of your thoughts.

39:21 - 39:22

Bill McLucas: Deflation.

39:22 - 39:23

Nader Salehi: I mean, the texting penalties . . .

39:27 - 39:55

Bill McLucas: and the, we had COVID, we had everybody working at home, we had people using their cell phones. It's not to excuse it, but really, look at the numbers associated with those cases. I just thought they were disproportionate, and it is what it is. I thought it was a bit of an overreach, and I think that is in part what contributes to some of the backlash. And I think penalties are gonna come down.

39:57 - 40:28

Nader Salehi: I agree with that, and I guess what I would say on penalties is not just that they can and should come down in many contexts, but I think what's been missing is a lack of understanding as to how penalties are calculated and how they're calibrated to the particular context. And I know the staff has spoken on this and has articulated its viewpoint on sort of the methodology that leads to the penalties that have been imposed, but I'll just say from this side of the fence, when we're talking with our clients, there's a substantial lack of sort

40:28 - 40:43

Nader Salehi: of clarity on what penalty we're gonna land at, why we got there, and how it sort of connects to the conduct. It's often been articulated as a penalty that needs to be big enough to hurt. I'm not sure if that's the right metric.

40:43 - 40:49

Bill McLucas: To Nader's point, it's not unusual to have a conversation with the staff and you say, how did you get to this number?

40:50 - 40:51

Nader Salehi: There's a

40:51 - 41:10

Bill McLucas: variety of factors. That's enlightening. Can you help me? You jump something fuzzy and you say, look, I've got a public company and a board of directors who've got to make a fiduciary decision here, and you get no more enlightenment other than that we think it's appropriate.

41:12 - 41:21

Juan Migone: Yeah. And I think also what's going to drive it is who's driving the penalties. There's going to be the staff, the front office, the Commission, and what messages they wanna send.

41:21 - 41:58

Anita Bandy: Yeah, I think one thing we're also gonna expect to see is much more of a focus on what's the corporate benefit. What's the corporate benefit? So FCPA penalties may be easier to get through than other parts of the program, especially disclosure cases, where there really isn't a proportional connection to shareholder harm or a corporate benefit. So I think that we can certainly expect to see more of a focus in terms of assessing the penalties. The other interesting thing is that you know you know at the end of the day you know the Division should be beholden

41:58 - 42:27

Anita Bandy: to the statutory framework and and for cases that we've seen that have litigated, even if you look at the shadow trading case, person found to have violated 10B insider trading, but judge refused to issue an O&D bar, and the penalty was within the confines of the statute. And so, are we gonna see more of a benchmarking to what you're reasonably likely to get in a litigation that a district court judge would order, maybe an area that's more considered?

42:30 - 42:58

Nader Salehi: Yeah, I mean, I think, just to pick up on that for a moment, there's a lot of ways to drive corporate action for an agency like the SEC. And I think and I hope that under a different administration, they will be more sort of judicious about using enforcement as the only vehicle by which you can drive corporate action. In other words, if you take the texting example, there were a lot of ways, I think, for the SEC, if it wanted to, to make the point about texting. There could have been speeches, there could have been exams,

42:58 - 43:18

Nader Salehi: there could have been pronouncements. I would argue they probably could have gotten to the same place without imposing the penalties that they did. And I understand that the penalties have other sort of outcomes that the speeches in the exam program don't. But I think we just need to remember the SEC can drive conduct lots of ways. You know, Enforcement penalties is just one of them.

43:18 - 43:55

Bill White: And on penalties, I agree with everything everyone said, but I'd put just a mark down on cases, and it just goes back to what we said in the beginning, but on cases where they can look like they're protecting Main Street or they're protecting the public or there's some real risk. I wouldn't shock me at all if the penalties were, in those cases, were not lowered very significantly, but were high. But generally, I agree, they're gonna go down. But I think they're going to need to show some level of toughness as we talked about before. And it's going to be where they decide to pick.

43:55 - 43:55

Juan Migone: I agree.

43:55 - 43:57

Anita Bandy: In the last, sorry, sorry, Nader.

43:58 - 43:59

Nader Salehi: No, no, no, I was just saying I agree.

43:59 - 44:19

Anita Bandy: Sorry. In the last minute, I wanted to just get thoughts on predictions in terms of how soon a new chair will be in place. I mean with the Senate now falling into the hands of the the president-elect party it may be a lot sooner than what we're used to. So any predictions in terms of how long the tenure of a four-person commission will last?

44:20 - 44:30

Bill McLucas: I would say sooner than we would normally see in a change of administrations, which is usually summer to fall. I think this one's going to be quicker. What that means, I don't know.

44:31 - 44:36

Juan Migone: I don't think we're going to see a two-to-two commission. I think that we're going to have a full commission.

44:37 - 44:40

Anita Bandy: Any predictions on when the new chair will be

44:40 - 44:41

Nader Salehi: coming in?

44:41 - 44:42

Juan Migone: As soon as he can be appointed.

44:43 - 44:50

Nader Salehi: Yeah, I would agree with Bill and say, I don't think we'll get to the summer without a Republican 5-person commission.

44:51 - 45:11

Bill White: Yeah, that's probably, that timing's probably right. The one thing we've gotta look at though, do we get a more traditional establishment commissioner or because of the control of the Senate that the Trump has, do we end up with sort of more of a wild card in there as chair? And so I think that's yet to be determined.

45:11 - 45:14

Anita Bandy: All right, well I think we're at time. Thank you.

45:14 - 45:16

Nader Salehi: Thank you. Thank you. Thanks. Thanks.