Sarah Mallett recently exited the U.S. Security and Exchange Commission’s Fort Worth Regional Office after more than seven years to join the Dallas office of Kirkland & Ellis.
Mallett, who was the assistant director for enforcement, was involved in several major cases, including the SEC’s 2022 case charging the Crosby Independent School District, its chief financial officer and its chief auditor with misleading municipal bond investors.
In this Q&A with The Texas Lawbook, Mallett discusses her time at the SEC, the challenges facing the SEC’s Fort Worth Regional Office, the SEC’s expansion of its whistleblower program and the impact on Texas businesses, and other SEC enforcement trends that impact companies and those in the financial investment world.
Texas Lawbook: What led you to join the SEC seven and a half years ago?
Sarah Mallett: As a young lawyer, I was fortunate to have great mentors who had previously held leadership positions at the SEC and the DOJ. Not only did they help develop my love for government investigations work, but they fostered in me a great respect for public service and the role of a government lawyer. Their experiences and stories of their “government days” inspired me to consider exploring a potential career change. I was doubly fortunate that another friend and mentor, Shamoil Shipchandler, had recently been named regional director of the SEC’s Fort Worth Office. Shamoil further encouraged me to apply to the SEC, and I was privileged to be selected as a staff attorney in 2016 and promoted to assistant director in 2021. I’m so grateful for the guidance and support of these mentors who supported my transition to the SEC – a move that ultimately provided me with more opportunities than I could have ever imagined.
Lawbook: What do you see as your biggest successes during your time at the SEC?
Mallett: I’m extremely proud of the seven and a half years that I spent working alongside the dedicated women and men of the SEC. The work we did was tireless and thrilling, and any successes are due to a team of dedicated staff and advisors across the commission who work with the enforcement division to protect investors and hold wrongdoers to account. Some of my greatest opportunities include the action we brought against Trevor Milton, working in parallel with the Southern District of New York; a billion dollar crypto action involving Hex; and my contributions and work on the SEC’s new SPAC Rule.
Lawbook: What are the biggest challenges facing Eric, David and the FWRO?
Mallett: I have the utmost respect for Eric Werner and David Fraser, and I learned so much from working alongside them at the FWRO. Eric has continued to build out a very talented staff and during his time as associate director of enforcement, he championed the FWRO to take on some of the commission’s most complex and notable investigations. I think the biggest challenge facing the FWRO is similar to what every SEC office or division faces, which is a lack of resources and the inability to hire and replace attorneys, accountants, and current market specialists. This is a challenge that is compounded for FWRO because of the sheer size and tremendous growth in the region. Public companies in every sector, financial institutions, and countless registrants have moved to Texas in recent years, and Texas has four of the nation’s most populous cities (Houston, Dallas, Austin, and San Antonio). FWRO lacks the headcount to keep up with the regulatory demands.
Lawbook: What are two or three trends that you see happening in the world of white-collar litigation and prosecution?
Mallett: It’s difficult to predict how different agencies’ priorities may change in response to an unexpected market shift, and even more difficult to predict in an election year, but I believe there are some trends and priorities that will continue to impact public issuers, SEC registrants, and any asset manager or financial firm.
The first is a continued expansion and dedication to whistleblower tips and whistleblower awards to help detect allegations of wrongdoing and expedite investigations. The SEC’s whistleblower program has been around for a long time, but we are starting to see similar programs expand in several other agencies, including SDNY’s whistleblower pilot program that launched in February. These programs have very powerful incentives and are very effective. Companies should collaborate with their counsel on best practices for: implementing internal controls to monitor and respond to potential misconduct, effectively investigate any allegations made by an internal whistleblower, and ensuring that policies and agreements do not impede or deter the reporting of misconduct to the government.
A second priority that we’re all familiar with, and I think will only increase in focus, is cybersecurity disclosure and remediation. Cybersecurity incidents are, unfortunately, becoming a part of corporate life, and I expect the patchwork of different rules, laws, and statutes across the state and federal level will continue to challenge companies and provide fertile ground for government enforcement. It’s important that companies invest in their security measures and internal controls and consult with counsel on an advanced plan for managing incident response, remediation, and disclosure obligations across varying jurisdictions, including internationally.
Finally, I think there will be an investigative wave regarding companies’ use of and their disclosures regarding their use of AI. Similar to the commission’s focus and priority on crypto in recent years, I anticipate that there may be a similar focus and priority on AI, starting with disclosure cases involving AI-washing.
Lawbook: What are the biggest challenges currently facing businesses regarding SEC enforcement?
Mallett: I think that companies face the challenge of keeping up with the pace of the SEC’s rulemaking compounded by a very active enforcement division that has prioritized increased penalties in an effort to deter additional misconduct by that company or in the broader industry. Companies are also challenged by the sheer burden and disruption of an enforcement investigation, often without clear communication from the staff about where an inquiry or investigation is headed. Companies often must produce thousands of documents at great expense over the course of multiple years. This is where defense counsel’s relationship with the SEC staff and familiarity with the innerworkings of the SEC can help alleviate some of the unknowns. I will leverage my firsthand knowledge and breadth of experience to work professionally with the SEC staff to protect my clients’ interests and achieve a more efficient and productive outcome.
Lawbook: Why leave the SEC now and why join Kirkland?
Mallett: Working at the SEC for more than seven years was a great privilege. My colleagues and mentors across the agency are some of the most skilled and dedicated professionals a person could hope to encounter in her career. I left with tremendous gratitude for the opportunities I had to work on and supervise some of the division’s highest priority matters and to grow as a lawyer and as a professional. Part of that growth trajectory includes taking on new challenges and seeking new opportunities. The opportunity to join Kirkland & Ellis is one that I had to seize. Kirkland is one of the most prestigious law firms in the world, and I have long admired the lawyers in its government, regulatory and internal investigations practice proup and their dedication to excellence and professionalism. They are an extraordinary group of professionals with whom I am delighted to work alongside to advise our clients through their most complex and high-stakes investigations and regulatory matters.