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To Self-Disclose or Not Self-Disclose? Thoughts from SEC’s Enforcement Director


To Self-Disclose or Not Self-Disclose? Thoughts from SEC’s Enforcement Director


At a recent securities regulation conference, Gurbir Grewal, director of the Securities Exchange Commission’s (SEC) Division of Enforcement, weighed in on the benefits of cooperating and self-reporting misconduct

The SEC has identified several influential factors it finds persuasive when assessing such cooperation

Engaging in early communication, being transparent in evidence gathering, and discussing areas of agreement or disagreement can prove critical to receiving consideration


Each company confronted with potential employee misconduct eventually faces the question: Should we report suspected misconduct to government authorities? That analysis can be particularly challenging for entities regulated by the Securities Exchange Commission (SEC). At a recent securities regulation conference in Palo Alto, California, Gurbir Grewal, director of the SEC’s Division of Enforcement, took the opportunity to give the Commission’s answer two key questions: What are the benefits of cooperating with the SEC? How does the SEC assess offered cooperation?

Director Grewal reminded the attendees that the SEC has long used leniency to encourage companies to self-disclose misconduct to the government, and to cooperate in the investigation and potential prosecution of such misconduct. Going back to the Seaboard Report in 2001, the SEC has identified several behaviors that it finds persuasive when determining whether a company has truly engaged in cooperation with authorities, and whether such cooperation warrants leniency: self-policing, self-reporting, remediating, and cooperating with authorities.

In the SEC’s view, each of these behaviors evidence a company’s genuine recognition of the need to address and deter misconduct, and reduce the need for punishment to deter future misconduct. The hallmarks of these behaviors are also clear and well known.

An outline of the factors Director Grewal found particularly pertinent is as follows:


  • The company has an established "tone at the top" that supports a culture of compliance
  • The company employs a demonstrated process for evaluating new developments in the law and the company's risk profile – and ensuring policies are up to date with developments and risks

Self-Reporting Without Delay

  • By reporting early, a corporation demonstrates that it has engaged in effective self-policing
  • Even before all the facts are known, reporting what the company knows and how it is addressing the situation (i.e., further investigation, remediation, etc.) shows good culture


  • Shows commitment to compliance
  • Should include, as appropriate:
    • Disciplining employees who commit misconduct
    • Strengthening internal controls
    • Training
    • Clawing back unjustified compensation

Above and Beyond Cooperation

  • Present findings to Enforcement Staff – allowing the opportunity for give and take
  • Summarize interviews and even interpret documents for Staff

Collaborate Early, Often and Substantially

  • Frequent communication with Staff
  • Relevant, fact-based communication that provide clarity and transparency

Elaborating further about cooperation, Director Grewal noted that companies and outside counsel can provide valuable assistance to Staff by curating their document productions. For example, a company should consider flagging “hot documents,” explaining key documents, securing evidence from difficult places around the world, and translating documents in foreign languages. These “above and beyond” actions are the types of factors the SEC considers when determining whether a company has truly cooperated.

With respect to collaboration, Director Grewal elaborated that, by engaging in early communication with Staff, demonstrating transparency in evidence gathering, and earnestly discussing with Staff areas of agreement or disagreement, companies and outside counsel can gain (or keep) their credibility with the SEC. Parenthetically, we have seen Director Grewal include himself in attorney proffers – coming in fully prepared to have a robust discussion – demonstrating the collaborative relationship between outside counsel and Enforcement Staff that he desires. Such collaboration, Director Grewal emphasized during his presentation, may prove critical when a company wants to argue that a lighter sanction – or no sanction at all – is warranted.

For more information, please contact the Barnes & Thornburg attorney with whom you work or Trace Schmeltz at 312-214-4830 or tschmeltz@btlaw.com or Eric Beste at 619-321-5015 or eric.beste@btlaw.com.

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This Barnes & Thornburg LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.



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