Unfit for Duty: The Officer and Director Bar as a Remedy for Fraud

Abstract

Many commentators have questioned the efficacy of the SEC’s enforcement program in the aftermath of the 2008 financial crisis. Some criticize the agency for allowing corporate defendants to settle charges without admitting or denying liability. Others dispute the impact of astronomical fines levied against too-big-to-fail financial institutions. Still others urge prosecutors to bring criminal charges against those who led the failed financial firms to ruin. This Article, written for a symposium on SEC enforcement, focuses attention on an underutilized weapon in the SEC’s arsenal: the power to bar officers and directors of public companies from future service in such roles. Despite longstanding power to seek and impose bars, the SEC seldom pursues the remedy against senior executives or directors of large firms. The bar has the potential to act as a corrective and deterrent device. If sought more widely, the bar could operate both to prevent future misconduct and to express societal assessments of individual responsibility for massive corporate failures. For these reasons, the SEC should look to the bar more frequently as a remedy for fraud. After laying out the case for the increased use of bar orders, the Article recommends changes to SEC enforcement strategies that could help improve the agency’s success rate when seeking bar orders in court.