New SEC Head Says Tougher Punishment Is Coming

The Securities and Exchange Commission (SEC) frequently chooses its top cop from among Wall Street's best defense lawyers. Its newest had not worked on a securities case in nearly six years before taking the job in July.

Source: WSJ | Published on December 13, 2021

SEC cyber probe

Gurbir Grewal became the SEC's enforcement program director after serving as New Jersey's attorney general for more than three years, during which time he overhauled police use-of-force training and disciplinary transparency, spoke out against Asian-American hate crimes, and took personal heat for how state officials handled the coronavirus pandemic.

Mr. Grewal has signaled that higher fines for wrongdoing are on the way, as well as efforts to remove more malefactors from Wall Street jobs, since taking over at the Wall Street watchdog. In an interview, Mr. Grewal stated, "We can't arrest them." "We'll be able to get them out of the industry."

Mr. Grewal's lengthy government career, during which he navigated partisan politics and managed a large number of law-enforcement agencies and personnel, is unusual for an SEC enforcement chief. The agency's top enforcer, usually a former prosecutor who rose to the top ranks of the defense bar, where they battled the SEC and Justice Department on behalf of corporate clients, is usually a former prosecutor who rose to the top ranks of the defense bar.

Mr. Grewal, 48, was a federal prosecutor in New Jersey and New York before being appointed to oversee law-enforcement agencies in his home state of New Jersey by two governors, one Republican and one Democrat. These posts elevated his profile and established him as one of the country's most visible Sikh Americans.

"I don't think he's ever tried to be a politician, but he ends up succeeding in the way that politicians succeed," said Jud Welle, a former prosecutor and Mr. Grewal's colleague who now leads cybersecurity investigations at Nardello & Co. "He treats people with dignity and avoids rushing through interactions simply because they do not serve his immediate interests."

Mr. Grewal was born in Jersey City and grew up in the northern suburbs of the state. Diplomacy was his first choice of career after graduating from Georgetown University, he said, but a federal hiring freeze in the mid-1990s prevented him from pursuing it. He discovered his calling after the terrorist attacks of Sept. 11, 2001, when hundreds of Sikh Americans were victims of racial profiling and violent attacks perpetrated by people claiming to be in retaliation for the attacks. (Practicing Sikh men wear turbans and bear beards.) Their faith is the fifth-largest independent world religion, based on the worship of one God and a belief in social justice and equality.)

Mr. Grewal, who was then a young lawyer in private practice, said he overheard racist taunts directed at him as he walked around downtown Washington a few days after 9/11. He felt excluded from client meetings at his law firm until he found a mentor who helped him advance. He decided to become a federal prosecutor because he believed that as a member of law enforcement, he could change people's misconceptions and biases.

Mr. Grewal, according to Adam Abensohn, a friend from their time together in the Brooklyn U.S. Attorney's Office, was a clever and resourceful young prosecutor whose ability to connect with people and earn their trust set him apart.

"He said something that stuck with me: he took a tremendous amount of pride in standing in front of a jury and saying he represented the United States, and causing some people who might be surprised to see that someone who looks like him can represent the United States and represent the very best of us," Mr. Abensohn said.

Later, as a federal prosecutor in Newark, New Jersey, Mr. Grewal oversaw the prosecution of traders who illegally obtained market-moving corporate news stolen by hackers. He also prevailed in a case against convicted Ponzi schemer Eliyahu Weinstein, whose 24-year sentence was commuted by then-President Donald Trump in January. Mr. Grewal expressed his displeasure with Mr. Trump's decision on Twitter at the time, calling it "one huckster commuting the sentence of another."

Mr. Grewal became the country's first Sikh state attorney general in 2018 when Democratic Gov. Phil Murphy promoted him from Bergen County prosecutor, a position he was nominated for by former Republican Gov. Chris Christie. As attorney general, he enacted new use-of-force policies for New Jersey's 37,000 police officers and intervened in a case to preserve deportation protections for immigrants enrolled in the Deferred Action for Childhood Arrivals program, which was invalidated by a federal judge in July.

He also oversaw the state's securities regulators but did not work on their cases directly. New Jersey became the first state to order BlockFi Inc., a well-known cryptocurrency company, to stop offering unregulated interest-bearing accounts for crypto deposits shortly after Mr. Grewal left state government to work for the SEC. According to the state, BlockFi failed to treat the product as a security, which would have necessitated state registration.

BlockFi has stated that the accounts are legal and will continue to be permitted in New Jersey while the company consults with the state.

Working in New Jersey's political system was difficult, according to Mr. Grewal, and he was contemplating his future when a top adviser to SEC Chairman Gary Gensler contacted him in May. When Mr. Gensler's first choice for the job resigned after a judge questioned her conduct in a lawsuit involving Exxon Mobil Corp., the agency needed a new enforcement director.

Several progressive economic-policy organizations applauded Mr. Grewal's appointment, after criticizing Mr. Gensler's first choice for director because her experience was mostly spent representing businesses in legal battles. According to other experts, Mr. Grewal's lack of experience in the private sector may make him overly prone to punishing misconduct as intentional when it was actually the result of mistakes or negligence.

"That is where you see pro-regulatory and pro-prosecutorial attitudes sweeping too broadly, and that affects market efficiencies," said Andrew Vollmer, a former SEC deputy general counsel now affiliated with George Mason University's Mercatus Center. "The main issue with Grewal is that he has a prosecutor's mentality."

Mr. Grewal has given several speeches since joining the SEC discussing the future of enforcement, including the possibility of increased penalties if firms or individuals repeat bad acts that the SEC has previously punished.

Mr. Grewal told the New York City Bar Association last month that some Americans have grown cynical about how business and government agencies interact, in part because "we, the regulators, are failing to hold them appropriately accountable, or worse, some believe there are two sets of rules."

Tougher sanctions, he believes, could help counteract this viewpoint. The SEC will seek to require some defendants to admit wrongdoing when they settle, a tactic tried during the Obama administration but rarely used because admissions can harm companies in related private litigation. (Typically, SEC defendants settle cases without admitting or denying the agency's claims.)

Mr. Grewal has stated that he will not be a spokesperson for the major social and political issues that he faced as Attorney General. However, "as a visible minority," he can still influence how American corporations and large law firms practice inclusion.

"Perhaps when you see people like me in this position, a law firm is more attentive to diversity issues, and that's fine," he explained. "Because I felt like it wasn't OK to look like me when I was there."