As Director of Enforcement at the Securities and Exchange Commission, Gurbir Grewal leads a team of 1,400 professionals charged with investigating possible violations of federal securities laws and prosecuting related civil suits. He also is a trailblazer, serving as the nation’s first Sikh-American State Attorney General (in New Jersey) as well as a former Assistant U.S. Attorney.
In April 2022, the Women’s Bar Association of the District of Columbia, along with the Hispanic Bar Association of the District of Columbia and the Asian Pacific American Bar Association of the District of Columbia, hosted a very special event with Grewal. At that event, Womble Bond Dickinson Partner Britt Biles moderated a discussion with Director Grewal about the SEC’s current approach to enforcement. This article—and the accompanying Line of Defense podcast episode—is based on that one-on-one conversation between Director Grewal and Biles.
Biles: So what made you interested in a public service career?
Grewal said that as the son of Indian immigrants, “I didn’t think it was possible for anyone from my background to be in the positions I’ve been in.” But the Sept. 11 terrorist attacks caused Grewal, then a young attorney in private practice, to rethink his career. He felt a tremendous sense of patriotism—but also encountered racism and hostility.
“I wanted to get into public service not only to give back to a country that had presented so many opportunities to my family and me, but also to promote understanding through my work,” he said. So Grewal became a prosecutor in part to help change perceptions and show that people from backgrounds like his could be part of the justice system.
Biles: You often have been the only Sikh-American in the room during your career. How do you overcome those challenges of being the first to hold certain professional positions?
Grewal: “When I walked into that law firm in DC in 1999, there wasn’t anyone who looked remotely like me…. There was no support or mentorship, and it was really tough.” He remembers being excluded from client meetings, even when other associates of similar experience levels were included.
“I’m mindful of those experiences and in every job I’ve held, I try to bring a sense of empathy and understanding,” he said.
At the SEC, he and his team reach out to student groups, law schools and diverse bar associations. For example, they are starting a securities fraud seminar at the Howard University School of Law.
“Being the first, I want to ensure I’m not the last,” Grewal said.
"Being the first, I want to ensure I’m not the last."
Biles: What enforcement areas are priority for your team at the SEC?
Grewal said he focuses on two broad principles: 1. Ensuring investors are protected 2. Making sure that the SEC is doing all it can to restore trust in financial markets.
“In my time, I’ve seen an erosion in trust in financial institutions, including the government. That erosion in trust is bad for all of us who are playing by the rules,” he said. “If every day Americans don’t trust the system, they aren’t going to put their hard-earned cash into the markets.”
In particular, Grewal believes there is a public perception that government agencies aren’t holding violators accountable for breaking the rules and that wealthy and powerful individuals have a different set of rules than for average Americans. He said the remedies for this lack of trust are:
- Robust enforcement, as broadly as possible and with a sense of urgency.
- A proactive approach toward new areas of risks to investors (ESG, Crypto, etc.).
- Utilizing all remedies available, including injunctive relief as well as penalties.
“We can’t do it alone, so we want to create this culture of robust, proactive compliance,” he said.
Biles: You mentioned corporate enforcement—for example, the 2021 Monaco Memo signaled the DOJ’s renewed focus on holding individuals responsible for corporate wrongdoing. How is that focus on individual accountability playing out at the SEC?
Grewal: “Nothing’s changed at the SEC. For as long as I can see, we’ve held individuals accountable—70 percent of our resolutions involve individuals. When we’re investigating an organization, we expect full cooperation.”
Biles: How are you looking at corporate recidivism?
Grewal: “I think you’ll see that in our penalties. If you have a series of smaller violations and then a big violation, I think that needs to be taken into consideration,” he said.
Grewal said if prior penalties didn’t deter bad behavior, then more severe penalties need to be employed.
“In my time, I’ve seen an erosion in trust in financial institutions, including the government. That erosion in trust is bad for all of us who are playing by the rules.”
Biles: You touched on cooperation. Are there any recent resolutions that demonstrate how the cooperation program is working?
In addition to penalizing repeat offenders, Grewel said the SEC should highlight success stories where a company’s cooperation resulted in no penalty or a reduced penalty. The SEC has a formal Cooperation Program in which companies have secured cooperation, non-prosecution or deferred prosecution agreements in exchange for assisting SEC investigators.
Grewal points to a 2020 resolution with BMW, in which the company was highly cooperative and that resulted in a reduced penalty.
“Just complying with the process isn’t being cooperative,” he said. Companies and individuals under investigation have to go above and beyond in working with SEC officials, and must be proactive in self-reporting and self-remediating in order to qualify for reduced penalties.
Biles: On the other end of the conduct spectrum, what are some factors that influence whether the Division seeks additional penalties?
Grewal said the same policy has been in place since 2013. “We’re going to seek admissions (of wrongdoing) when the conduct merits it, when there’s a higher need for public accountability. There’s nothing as attention-grabbing as admissions,” he said.
He noted one case where the company under investigation couldn’t provide basic documents, and it became apparent that large groups within the company were using off-channel communications (texts, DMs, etc.) to discuss transactions that should have been formally documented.
“Books and records requirements are core. When there’s an allegation of wrongdoing, we have to be able to get those documents and see what happened,” he said.
Biles: Data analytics are a big topic of conversation. Does the SEC use data analytics to prove cases, or is it an investigative tool?
Both, Grewal said. In some cases, advanced metrics are part of the evidence the SEC gathers in building a case. In other instances, certain metrics indicated a high probability of wrongdoing—and that leads to investigations.
“I want to make sure that I did everything and that we did everything possible to protect investors and worked with a sense of urgency, while at the same time taking care of the people (in the SEC) doing the work."
Biles: What keeps you up at night? What do you see in your role that causes you concern?
“There’s a lot. Of late, new and emerging areas, such as the Crypto space—are we doing enough to protect investors? Private funds is another area. There’s been a 70 percent increase in the amount of assets under private fund management since 2017— $18 trillion are now under management in the private fund space. There’s a lot of opacity there and that has led historically to fee and expense allocation, conflict of interest and valuation issues historically. More and more institutional investors are putting money in, so every day Americans have increased exposure through pension funds, etc. That’s a space where we’re intently focused, including on rulemaking,” Grewal said.
Biles: Let’s discuss crypto. Securities laws have always been flexible and adaptive. And the application of the federal securities laws to any emerging area, including crypto, depends on the facts and circumstances. But those facts and circumstances are subject to interpretation by the SEC or by a court. Does that create uncertainly and risk for market participants in the Crypto space?
“I don’t think so – I’d push back a little there,” Grewal said. “If there’s one thing we’re not guilty of at the SEC, it’s the element of surprise. I think the rules are pretty darn clear.” He said there are long-standing tests to determine whether a product should be regulated as security, regardless of how it is labeled. He pointed to the so-called Howey Test as an example of this well-established guidance, which applies to Crypto assets in addition to traditional assets.
Biles: Finally, what do you want your legacy and impact as Director to be?
He said, “It’s nine months in. Hopefully, that I lasted more than nine months!” (laughs). “I want to make sure that I did everything and that we did everything possible to protect investors and worked with a sense of urgency, while at the same time taking care of the people (in the SEC) doing the work. It’s a cliché, but ‘Did you leave it better than you found it?’—that’s what I want to do.”