Insights From Enforcers and Regulators: Top Government Officials Reflect on Recent Enforcement Trends and Upcoming Priorities

This year’s ABA White Collar Crime Conference featured a “Special Conversation with Enforcers & Regulators” with heavy hitters from the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the United States Attorney’s Office for the Northern District of California. The officials each stressed the themes of transparency, consistency, and predictability across the various law enforcement agencies, themes which have resurfaced frequently throughout this week’s conference. They also hit on several of the conference’s recurring, hot-button topics: voluntary self-disclosure (VSD) and whistleblowing, cryptocurrency, and artificial intelligence (AI).

The panel, which took place on Day One of the conference, featured Nicole Argentieri (Acting Assistant Attorney General for DOJ’s Criminal Division), Gurbir Grewal (Director of the SEC’s Division of Enforcement), Marshall Miller (Principal Associate Deputy Attorney General, DOJ), Ian McGinley (Director of the CFTC’s Division of Enforcement), and Ismail Ramsey (United States Attorney, Northern District of California). The panelists highlighted several key areas of enforcement over the last year and provided guidance as to upcoming enforcement priorities.

Here are the key takeaways:

• Repeat Offenders Won’t Get a Pass: When it comes to recidivist corporations, AAG Argentieri and PADAG Miller emphasized that consecutive non-prosecution and deferred prosecution agreements are disfavored by DOJ. Instead, DOJ will consider the full record of the company, including its regulatory record and civil penalties. The DOJ panelists emphasized that the best way to avoid being punished as a recidivist is to engage in VSD, likely one of the most discussed topics at this year’s conference. No company, according to the DOJ panelists, will be required to take a guilty plea, even for recidivist behavior, if they voluntarily self-disclose.
  
  Director Grewal stated that the SEC is uniquely focused on recidivism, but also recognizes that large registrants are more likely to have multiple violations due to their size. When considering recidivist behavior, the SEC will also consider whether the successive violations are technical or substantive. However, Director Grewal emphasized that the public’s trust in regulators and financial institutions requires that recidivist actors be held accountable through more robust and significant penalties, including restrictions on new business and admissions, which send a message of accountability. Director McGinley and the DOJ panelists noted that the time between the subsequent offenses, as well as a company’s remediation efforts, would be taken into account for penalty purposes.
• Cryptocurrencies Remain an Enforcement Focus: Director McGinley underscored that the CFTC is still seeing an enormous amount of fraud and manipulation in the crypto market. The CFTC brought its first crypto case in 2014, and now half of its docket is crypto-related cases. Specifically, the CFTC is looking at cases involving benchmark manipulations and registration violations. In contrast, Director Grewal noted that the global crypto market is a relatively small portion of the overall market of listed companies and investment vehicles. According to Grewal, the SEC is focused on protecting retail investors and vulnerable communities targeted by celebrity “touters” of crypto investments. Director Grewal explained that these schemes and frauds were age-old pyramid and multi-level marketing schemes just packaged in a new crypto “wrapper.” AAG Argentieri highlighted the work of the National Cryptocurrency Enforcement Task Force, now sitting inside the Computer Crimes and Intellectual Property Division in the DOJ. Clearly, DOJ is continuing to invest in personnel to tackle fraud and money laundering in the crypto market.
• AI: The Next Frontier of Fraud?: As with many panels this year, the panel touched on the emergence of AI technology. USA Ramsey spoke about his office’s focus on various AI frauds, including “fake it until you make it” schemes, investment frauds preying on affinity groups, and grandparent schemes. AAG Argentieri promised that, when AI is used to “supercharge” an offense, it will be treated like a dangerous weapon and will warrant more severe consequences at sentencing and in compliance requirements. As for the SEC, Director Grewal spoke about various “buckets” of risk around AI, including “AI washing,” akin to greenwashing schemes, in which advisors make false claims about the use or risk of their AI-investments, the use of AI in fraud or market manipulation, and the use of AI on social media to pump up stocks or create deep-fakes.
• Whistleblowers: None of the panelists wanted to steal Deputy Assistant Attorney General Lisa Monaco’s thunder by pre-announcing DOJ’s new whistleblower pilot program. However, the panelists all emphasized the value of VSD. USA Ramsey spoke about the desire to obtain transparency and consistency across USAOs and emphasized that public disclosures have a greater deterrent effect. Director McGinley noted that approximately 40% of CFTC investigations resulted from whistleblower tips.
• Sheriff of Silicon Valley: Finally, of particular note for members of the California bar, USA Ramsey discussed his recent office reorganization to focus on national security matters and protecting the country’s valuable intellectual property and trade secrets. The office now has three separate units for National Security and Cyber, Corporate and Securities Fraud, and Special Prosecutions (public trust, civil rights, environmental, tax, and public corruption). USA Ramsey congratulated his team for the investigation and prosecution of a trade secrets theft case in which a Chinese national was indicted for attempting to steal AI-related trade secrets from his employer. Attorney General Merrick Garland announced the indictment in his newsworthy address earlier that day.

More to come here from San Francisco! Continue to follow Enforcement Edge for updates.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.