SEC’s Enforcer Leaves Behind an ‘Aggressive’ Legacy

Gurbir Grewal

Financial advisement companies may be seeing the back of one of the Securities and Exchange Commission’s “most aggressive” enforcement directors with Wednesday’s announcement of the departure of Gurbir S. Grewal.

Grewal, the director of the SEC’s Division of Enforcement, will step down from his role on October 11, marking the end of a three-year tenure, according to the regulator. His successor, in the interim, will be Sanjay Wadhwa, the current deputy director of enforcement.

Grewal, who previously served as New Jersey’s attorney general, has been credited with driving significant reforms in the enforcement of securities laws. During his tenure, the SEC’s enforcement team tackled more than 100 enforcement actions related to noncompliance in the burgeoning cryptocurrency industry; undertook aggressive efforts to curb off-channel communications between financial advisers and their clients; and enforced recordkeeping violations.

“Director Grewal will go down as one of the most aggressive enforcement directors in SEC history,” says David Oliwenstein, a partner in Pillsbury Winthrop Shaw Pittman LLP who spent five years working in the SEC’s Division of Enforcement. “His enforcement priorities certainly included a focus on regulated entities, including investment advisers. He also led the enforcement division in focusing on charging individuals, assessing the conduct of gatekeepers (including chief compliance officers), and imposing record-setting penalties, all of which significantly impacted financial advisers.”

Grewal was especially focused on strengthening the SEC’s ability to act on emerging risks and to impose meaningful consequences on market actors who violated securities laws, according to the regulator.

Sea Change

In terms of recordkeeping, Grewal led efforts to enforce regulated entities’ compliance with recordkeeping requirements, launching an initiative in December 2021 that led to charges against more than 100 firms and more than $2 billion in penalties. Those firms, including broker/dealers and registered investment advisers, admitted to violations of federal securities laws and have since taken steps to enhance compliance measures. Those moves, combined with the off-channel communication crackdown, are areas that define Grewal’s legacy as one of aggressive enforcement.

“Like most sweeps, the off-channel communications were designed to affect a sea change in the industry—in short, to dramatically alter how firms do business,” Oliweinstein, who left the SEC in 2020, says. “Director Grewal will walk out of his office on his last day at the SEC feeling confident that he has done exactly that.”

The SEC noted in Grewal’s departure announcement that his team also sought to protect investors in private funds, looking for instances of fraud, conflicts of interest and inadequate disclosures, while also addressing issues related to insider trading and market manipulation. Under him, the SEC authorized more than 2,400 enforcement matters resulting in more than $20 billion in disgorgements, civil penalties and interest. Additionally, the agency secured more than $1 billion in awards to whistleblowers and returned billions to harmed investors.

Succession

Succeeding Grewal, Wadhwa has been with the SEC since 2003 and was a key figure in high-profile insider trading cases during his time in the New York Regional Office. He executed the agency’s enforcement priorities alongside Grewal. He has served as deputy director of the Enforcement Division since August 2021.

Before his appointment as deputy director, Wadhwa served as senior associate director of the Division of Enforcement in the SEC’s New York Regional Office, as well as deputy chief of the Market Abuse Unit and assistant director of the NYRO.

“My assessment is that Director Grewal’s departure will not significantly impact financial advisers and the plan adviser industry,” says Oliwenstein. “This is largely because Sanjay Wadhwa, the individual named acting director, will lead an enforcement division that is at least as aggressive as the division under director Grewal. There may be other developments in the near future that signal a regulator focus, but Director Grewal’s departure is unlikely to be one of them.”

Sam Waldon, the division’s chief counsel, will also step into a new role as acting deputy director. Waldon has been chief counsel for the SEC’s Division of Enforcement since March 2022. Prior to rejoining the SEC, he was a partner in law firm Proskauer Rose LLP. Waldon previously held SEC roles as assistant chief counsel from 2010 to 2018 and as an investigative attorney in the enforcement division from 1996 to 1998.