Remarks at the Practicing Law Institute’s 58th Annual Institute on Securities Regulation

On January 19, 2006, in the clear blue Florida sky, an Atlas V rocketed off from Cape Canaveral carrying a small spacecraft called New Horizons.1 This mission, planned by NASA-that is the National Aeronautics and Space Administration, not the other NASAA, the North American Securities Administrators Association-exited the Earth at more than 36,000 miles per hour for a long-term "voyage to visit the planet Pluto and then beyond."2 That same month, the Securities and Exchange Commission launched something of similar importance, at least in my view:3 its Statement Concerning Financial Penalties, also known as the "Corporate Penalty Statement."4

Announced in conjunction with two settled accounting fraud cases, one with a $50 million civil penalty and the other with no penalty,5 the Corporate Penalty Statement was issued in a unanimous, 5-0 decision under the leadership of Chairman Cox, after over 40 hours of meetings reconciling differing views amongst the Commissioners.6 The Statement is a concise document with a specific mission: to provide an analytical framework so when the Commission imposes a civil penalty on a corporate issuer, it can explain why, and that explanation should rest on what Congress authorized and why it authorized it.7 As a measure approved by Commission vote, the Statement should have a similar stature to other regulatory guidance provided by the Commission, whether in amicus briefs, adjudicatory opinions, administrative orders, interpretive releases, or otherwise.

The Corporate Penalty Statement starts with the most salient consideration on the imposition of civil penalties: the underlying statutory authority. In passing the Remedies Act of 1990, Congress gave the Commission authority to seek civil penalties against corporate issuers. In its accompanying report, the Senate Banking Committee recognized that shareholders may ultimately bear the cost. The report stated that a corporate penalty should be sought where shareholders received an improper benefit, and that in situations where they were the principal victims, the "Committee expects that the SEC, when appropriate, will seek penalties from the individual offenders acting for a corporate issuer."8

The Corporate Penalty Statement is grounded in the statute and its legislative history. The Statement identifies two principal considerations. First, whether the corporation received a direct benefit from the violation, such as reduced expenses, increased revenues, or some other unjust enrichment. The strongest case for a penalty is one in which shareholders received an improper benefit due to the violation; the weakest is one in which shareholders are the principal victims of the securities law violation. Second, the degree to which the penalty will compensate or further harm injured shareholders. The Statement then lists seven additional factors: the need to deter the particular type of offense; the extent of injury to innocent parties; whether complicity was widespread within the corporation; the level of intent; the difficulty of detecting the offense; the presence or absence of remedial steps; and the extent of cooperation with the Commission and other authorities.9

To be clear, the Corporate Penalty Statement does not take the position that corporations should never be assessed a civil penalty. Indeed, it states that "we proceed from the fundamental principle that corporate penalties are an essential part of an aggressive and comprehensive program to enforce the federal securities laws[.]"10 As Commissioner Gallagher observed, the Statement is based on an analysis of the statute itself, not a mere policy preference.11 It is a framework for judgment, not a rule of abstention.

This year marks the twentieth anniversary of the Statement - and also my twentieth year of continuous employment at the Commission. In that sense, I have had an insider's view on how the Statement has fared over those two decades. After twenty years, we ought to look back at why the Statement was needed, consider how it has fared, and then consider questions that confront the Commission today in the application of the Statement's principles.

So how has the framework fared? Like the New Horizons mission, its journey has had a number of stages. The Commission attempted, in 2007, to give the Statement practical force through a pilot program in which the Commission provided feedback to the staff on potential penalties prior to reaching a settlement with the proposed defendants.12 After all, decisions on enforcement matters are ultimately made by the Commission, not the staff who serve as attorneys for the Commission.

That approach, however, was discontinued in 2009 by Chair Schapiro.13 In the years that followed, the Corporate Penalty Statement and its factors were seldom visible in reasoning the public could see. It also started to disappear as an analytical tool internally within the SEC as well. In 2015, Commissioner Piwowar noted, "I have become concerned by the increasing number of staff recommendations that have not been accompanied by analysis of the principal factors described in the 2006 penalty statement."14

Yet, the Commission continued to impose civil penalties against corporate issuers in significant amounts. Back in 2006, then-Commissioner Atkins had warned that staff might come to measure their own performance by the size of the penalties they obtained.15 By fiscal year 2024, the Commission was announcing some of the largest financial remedies in its history.16

Upon becoming the Acting Chairman on January 20, 2025, one of my first directives was for the staff to follow the Corporate Penalty Statement, which has never been rescinded or withdrawn. Rather, it had simply been ignored, along with the principles underlying the Commission's statutory authority to impose civil penalties. This past February, when the Division of Enforcement issued substantive updates to the Enforcement Manual-the first since 2017-it included an instruction that staff consider the Corporate Penalty Statement when deciding whether, and how much, to seek in civil penalties from corporations.17 But a retrospective about the Corporate Penalty Statement that ends with "and so the framework was restored" would miss more important points.

In some ways, the Statement has parallels to the New Horizons mission. Seven months after New Horizons launched towards Pluto, while it was en route, astronomers voted that Pluto was no longer a "planet."18 The spacecraft was still headed to the same place, but the objective to which it was headed had been redefined. The Corporate Penalty Statement is in a similar position. Its principles still point in the right direction. But the world to which the Commission applies them today is not the same world in which they were written. Let's examine some of those areas, which I describe next in no particular order.

The first concerns who the shareholders are. The Statement's framework implicitly recognizes that for most public companies, shareholders are a continuously changing group.19 Thus, it discusses whether a civil penalty would be paid by shareholders who had been the principal victims of the violation and the extent to which the passage of time has resulted in shareholder turnover.20 However, the Statement does not offer guidance as to how that might work in practice, particularly given that years may elapse between when corrective disclosure is made by a corporate issuer, such as through a restatement or Form 8-K filing, and when the SEC finalizes an enforcement recommendation.

Consider a company that overstates its earnings, which has resulted in an inflated stock price. When corrective disclosure is issued, the stock price falls. In an efficient market, prices should reflect the possibility of SEC enforcement action as well as shareholder class actions. At that point, would a corporate penalty further harm injured shareholders? Some might argue that there is no further harm, because the shareholders who purchased after the corrective disclosure did so with knowledge that such penalties and other remedies might be forthcoming. But is that the right result? While it is true that the subsequent shareholders may have priced in the potential impact with respect to their purchase price, it comes at the expense of shareholders who were harmed by the original fraud and then sold their shares at the lower price that factors in potential enforcement and class action liability.

The second concerns the use of Fair Funds to compensate victims. The Fair Funds provision adds a complication that the Corporate Penalty Statement itself flagged. When funds from civil penalties are returned to harmed investors who are also shareholders of the penalized company, they are in effect paying themselves, less the cost of distribution.21 Even a well-run distribution cannot fully solve the deeper problem: identifying who was harmed when shares change hands constantly. Most shares are held in street name through brokers and other intermediaries, so reaching the beneficial owners depends on claims processes that many eligible investors never complete. A distribution can return money to some investors. It cannot reliably match the people who pay the penalty with the people who were hurt.22

The third development concerns the underlying charges and any required intent element. The Statement's intent factor assumed a meaningful distinction between deliberate fraud, such as scienter-based charges, and lesser conduct, with corporate penalties more appropriate in egregious cases. In recent years, however, the Commission has imposed significant penalties for violations that do not require intent at all. The internal accounting controls provision is one example. In 2023, the Commission imposed a $25 million penalty on a company for controls failures relating to its stock buybacks23-controls that, as Commissioner Peirce and I explained at the time, addressed a legal question rather than an accounting one.24 When a violation that requires no showing of intent carries an eight-figure penalty, the intent factor in the Corporate Penalty Statement appears to have minimal influence on the decision.

The fourth concerns new forms of organization. In 2006, special purpose acquisition companies were a niche product. A few years ago, they became a common route to the public markets. A SPAC raises money before it has a business and then merges with a private company. That structure creates a puzzle for the 2006 framework. If a SPAC is penalized for misconduct before its merger, who pays? The SPAC itself has little more than cash held in trust for its investors. In practice, the penalty may be paid only after the merger closes, which means the cost falls on the shareholders of the combined company. Those include owners of the target business, who had nothing to do with the SPAC's violations, and investors who bought after the misconduct occurred. The Corporate Penalty Statement's two principal considerations, benefit to the corporation and harm to its shareholders, were likely not written with the two-stage SPAC transaction in mind.

The fifth concerns the broader use of dual-class stock corporate structures, where a founder or controlling shareholder may direct the company with a majority of the votes while owning a smaller fraction of the equity. When such a company pays a civil penalty, the cost tends to be borne by economic ownership, not by voting power. The public shareholders who had little or no influence on how the company was run may end up shouldering most of the civil penalties, while the controlling shareholder, who might arguably be closer to the misconduct at issue, may be impacted significantly less. Whatever one thinks of dual-class structures, that is a reason to look first to the individuals responsible for the violations. As corporate structures evolve, Commission staff should be thinking about which shareholders will be impacted the most by a civil penalty. Are there ways of using Fair Fund authority to recompense non-controlling shareholders in such situations?

The sixth concerns the interaction of the civil penalty with the SEC's whistleblower program. The whistleblower program, created in 2010, pays awards of 10 to 30 percent of monetary sanctions collected in actions over $1 million, so the issuance of a penalty and its size now have consequences beyond deterrence.25 While the potential for a whistleblower award does not and should not factor into whether a corporate penalty is imposed, a greater focus on individual wrongdoers, who may lack the resources to pay, could result in smaller awards, or even possibly no award if the amount falls below the $1 million threshold, for the whistleblowers who made those cases possible. Given the public interest in encouraging reports of wrongdoing and malfeasance, are there other ways to ensure whistleblowers are meaningfully rewarded that do not depend on imposing large civil penalties borne by victimized shareholders?

The seventh concerns what constitutes a direct and material benefit to a corporation as a result of the offense. The Statement provides examples such as reduced expenses or increased revenues. Those examples make sense when a company obtains additional revenues through bribes that are prohibited by the Foreign Corrupt Practices Act or obtains a lower rate of interest on debt issuance based on false financial statements in SEC filings. Other cases may be harder. Is it really a corporate benefit when the company's employees, some of whom might have been involved in a fraud, are paid in stock whose price was inflated due to the fraud? Some have suggested that the company saved money by issuing fewer shares, but I am not so sure. It is possible that company executives were aware of the financial fraud and adjusted their incentive compensation awards accordingly. In any event, whatever the theoretical amounts that might have been saved, it was the shareholders who were deceived. It seems odd in those circumstances to find that the corporate insiders were the victims of the fraud and the outside shareholders the beneficiaries of the fraud.

What do these developments suggest? In my view, they indicate that additional refinements need to be made to the application of the Corporate Penalty Statement. Its central thesis-that shareholders ultimately pay corporate penalties, which must be justified with that in mind-matters as much today as when it was first published. But the framework deserves to be applied visibly and, in some areas, extended thoughtfully. The twentieth anniversary of the Corporate Penalty Statement is a fitting occasion for the Commission to consider supplementing, or revising, the Statement to address situations that were not originally contemplated.

There is one more subject to address, because it is the other half of the deliberations in Congress during the passage of the Remedies Act. A framework that asks the Commission to think carefully before penalizing shareholders is credible only if the Commission is equally willing to pursue the people responsible. The Senate Report said as much in 1990: where shareholders are the victims, the Commission should, when appropriate, look at the individual offenders.26

Corporations do not act on their own. Every misstatement in a filing was drafted, reviewed, and signed by someone. Every manipulated quarter reflects decisions made by people who likely understood what they were doing or chose not to. Corporate misconduct flows through people, and deterrence must flow back to them. That remains true even if firms rely more on algorithms and super intelligence. People decide to deploy those systems, set their parameters, supervise their output, and choose whether to override them. Automation does not break the chain of accountability.

A civil penalty paid out of the corporate treasury is too often borne by shareholders and rarely is it felt by the executives and other company insiders who caused it. Personal consequences are different. An officer who knows that misconduct could end a career in public company leadership weighs a decision differently from one who expects the company-and by extension the shareholders-to write a check to cover their misdeeds.

Congress has given the Commission tools for this purpose. Courts may bar individuals from serving as officers or directors of public companies and, since the Sarbanes-Oxley Act, the Commission may impose those bars in its own cease-and-desist proceedings.27 The Commission may censure, suspend, or bar persons associated with broker-dealers and investment advisers, and may suspend or bar accountants or attorneys who appear and practice before it.28 Sarbanes-Oxley also requires chief executive and chief financial officers to reimburse certain bonuses and stock sale profits when misconduct leads to a restatement.29 These remedies can be calibrated. A suspension removes someone from a position of trust for a period of time. A bar protects investors from a person who has shown that he or she should not hold that trust at all.

The Commission should not be reluctant to pursue individuals and use these tools where warranted. Individual remedies can be harder to obtain. They take longer to investigate, they are litigated more often, and individuals with their livelihood at stake fight harder than corporations deciding whether to settle. Individuals are also often covered by insurance, indemnification, and expense advance provisions to fund their defense. Those are reasons to staff and support individual cases properly, not reasons to accept a corporate settlement in their place. When the choice is between a large corporate penalty and holding the responsible officers and employees accountable, the 2006 framework and common sense point in the same direction.

So what happened to New Horizons? Although its destination had changed in definition, the spacecraft kept flying anyway.30 In 2015, it reached Pluto and found a world far more complex than anyone had mapped.31 Then it kept going, and twenty years later, it is roughly 6 billion miles away from Earth, yet still sending back what it finds.32 The Corporate Penalty Statement can do the same. Its principles still point in the right direction. What it needs is what any long mission needs: course corrections where the map has changed and a clear memory of purpose-minimizing the likelihood that innocent, harmed shareholders must pay twice and making sure that we hold those individuals responsible for the misconduct accountable.

Thank you.

• 1See NASA, January 19, 2006: New Horizons Launches for Pluto (Jan. 19, 2006), available at https://www.nasa.gov/image-article/january-19-2006-new-horizons-launches-pluto/.
• 2NASA's New Horizons Launches on Mission to Pluto (Jan. 14, 2015), available at https://www.youtube.com/watch?v=fRgsI6_CzMw.
• 3My remarks today represent my views as an individual Commissioner and not necessarily the views of the Commission or my fellow Commissioners.
• 4Statement of the Securities and Exchange Commission Concerning Financial Penalties, Press Release No. 2006-4 (Jan. 4, 2006) ("2006 Corporate Penalty Statement").
• 5SEC v. McAfee, Inc., Litigation Release No. 19520 (Jan. 4, 2006); In the Matter of Applix, Inc., Securities Act Release No. 8651 (Jan. 4, 2006).
• 6Commissioner Annette L. Nazareth, Remarks Before the ABA National Institute on Securities Fraud (Sept. 28, 2006), available at https://www.sec.gov/newsroom/speeches-statements/spch092806aln-remarks-aba-national-institute-securities-fraud.
• 7See 2006 Corporate Penalty Statement, supra note 4.
• 8

  Id. (quoting S. Rep. No. 101-337, at 17 (1990)).

• 9Id.
• 10Id. (further stating "that the availability of a corporate penalty, as one of a range of remedies, contributes to the Commission's ability to achieve an appropriate level of deterrence through its decision in a particular case.").
• 11Commissioner Daniel M. Gallagher, Remarks at Columbia Law School Conference (Hot Topics: Leading Current Issues in Securities Regulation and Enforcement) (Nov. 15, 2013), available at https://www.sec.gov/newsroom/speeches-statements/2013-spch111513dmg.
• 12Chairman Christopher Cox, Remarks Before the Mutual Fund Directors Forum Seventh Annual Policy Conference (Apr. 13, 2007), available at https://www.sec.gov/newsroom/speeches-statements/spch041207cc-remarks-mutual-fund-directors-forum-seventh-annual-policy-conference.
• 13Chairman Mary L. Schapiro, Address to Practising Law Institute's 'SEC Speaks in 2009' Program (Feb. 6, 2009), available at https://www.sec.gov/newsroom/speeches-statements/spch020609mls-address-practising-law-institutes-sec-speaks-2009-program.
• 14Commissioner Michael S. Piwowar, Remarks at the "SEC Speaks" Conference 2015: A Fair, Orderly, and Efficient SEC (Feb. 20, 2015), available at https://www.sec.gov/news/speech/022015-spchcmsp.html.
• 15Commissioner Paul S. Atkins, Remarks Before the SEC Speaks Conference (Mar. 3, 2006), available at https://www.sec.gov/newsroom/speeches-statements/spch030306psa-remarks-commissioner-paul-s-atkins-sec-speaks-conference.
• 16SEC Announces Enforcement Results for Fiscal Year 2024 (Nov. 22, 2024), available at https://www.sec.gov/newsroom/press-releases/2024-186.
• 17SEC's Division of Enforcement Announces Updates to Enforcement Manual (Feb. 24, 2026), available at https://www.sec.gov/newsroom/press-releases/2026-20-secs-division-enforcement-announces-updates-enforcement-manual.
• 18Library of Congress, Why is Pluto no longer a planet?, available at https://www.loc.gov/everyday-mysteries/categories/astronomy/item/why-is-pluto-no-longer-a-planet/.
• 19See 2006 Corporate Penalty Statement, supra note 4.
• 20Id.
• 21See 2006 Corporate Penalty Statement, supra note 4.
• 22This can be further complicated by investors who hold positions in corporate issuers indirectly through mutual funds and exchange-traded funds. In such a situation, while the fund or ETF may continue to hold the stock of the penalized company, an investor in the fund may have already redeemed or sold the fund shares prior to the Fair Fund distribution being distributed.
• 23Charter Communications to Pay $25 Million Penalty for Stock Buyback Controls Violations (Nov. 14, 2023), available at https://www.sec.gov/newsroom/press-releases/2023-235.
• 24The SEC's Swiss Army Statute: Statement on Charter Communications, Inc. (Nov. 14, 2023), available at https://www.sec.gov/newsroom/speeches-statements/peirce-uyeda-statement-charter-communications-111423#_ftn4.
• 25Securities Exchange Act of 1934 ("Exchange Act"), §21F, 15 U.S.C. §78u-6 (added by Dodd-Frank Act § 922 (2010)).
• 26See supra note 8.
• 27Exchange Act § 21(d)(2), 15 U.S.C. § 78u(d)(2); § 21C(f), 15 U.S.C. § 78u-3(f); Securities Act of 1933 § 8A(f), 15 U.S.C. § 77h-1(f).
• 28Exchange Act § 15(b)(6), 15 U.S.C. § 78o(b)(6); Investment Advisers Act of 1940 § 203(f), 15 U.S.C. § 80b-3(f); Rule 102(e) of the Commission's Rules of Practice, 17 C.F.R. § 201.102(e).
• 29Sarbanes-Oxley Act of 2002 § 304, 15 U.S.C. § 7243.
• 30Johns Hopkins Univ. Applied Physics Lab'y, New Horizons: Mission Overview (last visited Oct. 30, 2026), available at https://pluto.jhuapl.edu/Mission/Where-is-New-Horizons.php#Current-Position.
• 31Id.
• 32Id.