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On Monday, Mary Jo White, Chairman of the Securities and Exchange Commission, addressed a group of directors and senior executives at Sanford University's Twentieth Annual Sanford Director's College.  She revealed how the SEC thinks about the important role directors occupy as "gatekeepers" for shareholders, how the SEC views self-reporting or wrongdoing and cooperation in SEC investigations, and how the whistleblower program works.

 

It seems that the SEC is taking a hardline on the responsibilities of directors. She called directors the "essential gatekeepers upon who investors and the SEC rely." Adding to the stress of the job, the SEC says that "directors play a critically important role in overseeing what your company is doing, and by preventing, detecting, and stopping violations of the federal securities laws at your companies, and responding to any problems that do occur."   She made it clear that she believes directors and officers set the "tone at the top" for their entire company.  With that said, it is apparent that under Mary Jo White, the SEC will be targeting the top in its investigations. We can expect to see more director and officer indictments with the SEC is setting this "tone at the top".

 

In her speech, Mary Jo White also gave important guidance on self-reporting and cooperation with SEC.  In short, she stated that if a company has uncovered serious wrongdoing, they need to decide whether, how and when to report the matter to the SEC.   The first question that needs to be asked is whether what has been discovered constitutes material information that requires public disclosure. If the answer is yes, that fact will also invariably dictate an obvious affirmative answer to broader self-reporting to the SEC.

 

When it comes to cooperation, White said "there is, of course, cooperation and then there is cooperation, just as there are compliance programs that look great on paper but are not strongly enforced. We know the difference."   She made it clear that the SEC wants companies to decide to cooperate early in the investigation, and be decisive when choosing to self-report and cooperate. The SEC expects companies to be clear from the outset that internal investigators will search for misconduct wherever and however high up it occurred.

 

Finally, Mary Jo White gave the 'companies beware' statement, explaining that with the SEC's new whistleblower program, the SEC is more likely than ever to learn of the misconduct through another channel.

 

Certainly, Mary Jo White is putting the ball in the court of those at the top: officers and directors. Whether the speech was delivered as a warning or a attempt to strike fear into the hearts of her audience of directors and officers of some of the largest companies in the country; Mary Jo White made it clear that the SEC means business, will look at the leaders to place the blame and will continue to aggressively investigate possible securities violations.

 

You can read the entire prepared speech here.

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