Sandra Hanna on SEC Enforcement Monitors Compliance Officers and the PCAOB

Sandra Hanna, founding partner at the Securities and Exchange Commission (SEC) boutique firm Bruch Hanna, has jumped to Miller & Chevalier to lead Miller’s securities enforcement practice.

Sandra Hanna
Miller Chevalier
Washington, D.C.

She was with Bruch Hanna for nine years before moving to Miller last month.

Hanna represents boards of directors, audit committees, public companies, registered investment advisors and broker-dealers, auditors, accountants, and other individuals in investigations and proceedings by the SEC, Public Company Accounting Oversight Board (PCAOB), Department of Justice (DOJ), and other federal and state agencies. 

Hanna also has significant experience serving as the deputy to the Independent Corporate Monitor, or advisor to the Monitor, in settled resolutions with the DOJ and SEC in both Foreign Corrupt Practices Act (FCPA) and securities matters. 

Why the move from a small boutique firm to a much larger firm?

“It was not an easy decision,” Hanna told Corporate Crime Reporter in an interview last month. “I’m really proud of what we grew at Bruch Hanna. It grew into what was the only boutique law firm that Chambers ranked for SEC enforcement work. And Greg and I had worked together for more than twenty years.” 

“But I wanted to be in a larger firm with complementary practice areas. I’m thrilled to have white collar, FCPA, compliance and tax professionals available to work closely with. The practice is really changing a bit as the government gets much more aggressive. I thought I could better meet client needs with partner experts in related fields.”

Over the first 18 months or so of the Biden administration, we see a lot of enforcement rhetoric, but on the ground we are not seeing the level of big cases to match the rhetoric. 

“On the SEC, it may be that the numbers of cases are close, but the sanctions they are seeking and the kinds of cases they are bringing are much tougher than I’ve ever seen before.”

“For example, if you represent a registered investment advisor with a securities law violation, you are seeing demands for bars against individuals in ways I have not seen before. They are pursuing very aggressive theories and sanctions that are career ending for individuals and perhaps franchise threatening for SEC registrants.”

FCPA enforcement actions are way down this year. What’s going on?

“I think it’s just a pipeline issue and some catch up from prior administration. That’s almost always true when you have a change in administration. And almost every administration says they are going to be tougher than the previous administration. In this case, with this administration, I think it’s clearly true.”

“The SEC has clearly signaled its intention to be tougher. And I’m seeing it in my own cases that are in the pipeline. It takes a while for the reported cases to catch up with the reality on the ground. But I can tell you that in my cases, the SEC is seeking sanctions and remedies that are very different. And they have said it. The SEC has said that when you look at precedent – prior settled cases – don’t go back too far, because what has happened in the past is not going to happen in the future. We are doing things very differently now.”

In what ways does this SEC enforcement program differ from the previous administration’s program?

“In a fair number of ways. There are tougher sanctions. We just saw a number of cases that came out of the SEC that involve the national office partners at auditing firms. Historically there have been less than six cases that involved the national office, which is the last line of defense. National office partners provide consultation on narrow issues presented to them by the engagement team. They are not members of the audit team, they provide additional consultation on issues.” 

“The SEC has said in the last few weeks at a conference in connection with these press releases for these national audit cases – and there are more in the pipeline by the way – that the national office is no longer off limits and they will be at the national office in a wider range of cases.”

“That’s reaching into an area, while certainly within the SEC’s jurisdiction, was historically not done, except in the most egregious cases, because you recognize that the national office partners have a limited role in these matters. But that’s not true anymore. Those folks are facing significantly increased liability. That’s true of auditors in general.” 

“And you are seeing the same kind of aggressive posture at the PCAOB. They have long been considered at least on the enforcement side, a little bit sleepy when compared to the SEC in enforcement matters against auditors.” 

“Under Erica Williams, the new board chair, we are seeing a sea change with really aggressive investigations and sanctions by the PCAOB that we have not seen before. For example, they are seeking admissions against auditors and audit firms now.” 

“Those PCAOB cases with admissions will start to roll out pretty soon.”

Typically, the SEC settles cases with neither admit nor deny language. Six or seven years ago, there was a dust up at the SEC when the idea was floated to maybe force admissions. What happened there?

“It happened a little bit in some significant cases, but when you parse the language as to what was admitted, it wasn’t much. I think we are actually going to see some more admissions from the SEC. As a practical matter, given the collateral consequences, it’s difficult for companies to settle up to charges that involve admissions. There is private litigation, there are collateral consequences, there are other agencies. The staff is certainly going to try. Defense lawyers are going to push back hard and try to limit the collateral consequences of any admissions.”

“The harder question is what all of this means for individuals. There are rough guidelines about what cooperation means for companies. There are no meaningful guidelines for what cooperation means for individuals. I’m troubled by that.”

A couple of years ago, the SEC introduced deferred prosecution agreements. That struck me as strange, because the SEC doesn’t prosecute cases. It’s all civil cases.

What’s the meaning of a deferred prosecution agreement in SEC practice?

“There were only a few of them. And they largely have gone away. I don’t anticipate seeing them again because of the issues you are raising. What does it mean to have a deferred prosecution agreement when there is no criminal conduct?”

“But the SEC does do things like deferred prosecutions. They may ask the industry to self-report. And when they self-report and do it well and are clear and honest and straightforward about it, the sanctions that the SEC imposes may be limited. And that’s a good way to use government resources when you have an industry wide problem.”

“We have seen that in the broker-dealer space. It’s a smart way to do it. But I don’t think the SEC is ever going to be an agency that does deferred prosecution agreements.”

How did it come about?

“Some years ago now, there was a move to hire former criminal prosecutors in the enforcement program for the first time. I think it was part of that legacy.”

There has been reporting on compliance officers raising a red flag saying they are being asked to do things that put their profession at risk. What’s going on there?

“The government needs to be mindful and thoughtful about what it requires of compliance officers. It takes a special kind of person to be willing to become a compliance officer in this day and age. When we increase their potential for liability, we discourage people from becoming compliance officers.” 

“As a practical matter, they will pull it back a bit, notwithstanding the statements when they start to look at what compliance officers do. And in my experience, they are always doing the best that they can in difficult circumstances. We are not going to see the kinds of prosecutions or enforcement matters against compliance officers that the current language is suggesting.” 

“It is a warning shot though. It’s unlikely we will see actual prosecutions. It doesn’t mean they are not going to try. It doesn’t mean they are not going to include chief compliance officers in a Wells process at the SEC or at another process at the Department of Justice. But ultimately those cases are going to be hard to bring, will be litigated when they are brought and ultimately we will see a pulling back of that kind of rhetoric.”

[For the complete Interview with Sandra Hanna, 36 Corporate Crime Reporter 27(13), July 4, 2022, print edition only.]

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