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SEC Persuing Wrongdoers Aggressivly

Openion Article

What will this mean for your firm?

Speeches by the SEC's , Mary L. Schapiro, and Robert Khuzami have struck a predictably forceful tone, acknowledging a "general sense of renewed urgency" to pursue wrongdoers aggressively. Since assuming his position in early 2009, Khuzami and his staff already have taken concrete steps to improve the Division of Enforcement as the SEC continues to tighten its oversight of the financial markets. Its new initiatives include:

SEC National Specialized Units.

The SEC is creating five new specialized units dedicated to particular areas of securities law, each headed by a unit chief and staffed nationally by lawyers and other professionals with the requisite expertise. These include:

• Asset Management. Will focus on investment advisers, investment companies, hedge funds, and private equity funds.
• Municipal Securities and Public Pensions. Will focus on the growing market for municipal securities, including scrutiny for offering and disclosure issues and "pay-to-play" schemes in which money managers and advisers pay kickbacks in return for the right to advise or receive funds.
• Foreign Corrupt Practices. Will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits
  U.S. companies from bribing foreign officials for government contracts and other business.
• Market Abuses. Will focus on large-scale market abuses and complex manipulation schemes by institutional traders, market professionals, and others.
• Structured and New Products. Will focus on complex derivatives and financial products, including CDS, CDOs, and securitized products.

SEC to streamline Management to Increase Number of Front-Line Attorneys.

The Division of Enforcement is streamlining or "flattening" its management structure to increase the number of front-line attorneys conducting the "heart and sole function of the SEC" - investigating and bringing cases to enforce the securities laws.

SEC to Issue More Subpoenas.

The SEC's new policy is intended to make it easier for its staff to obtain subpoenas by getting approval only from their supervisors, not from the full five-member Commission. These changes are intended to streamline the SEC's investigations and to increase pressure on defendants. As Khuzami stated: "If defense counsel resist the voluntary production of documents or witnesses or fail to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on your desk the next morning."

New SEC Office to Monitor Tips.

The SEC is creating a new Office of Market Intelligence to monitor incoming tips and complaints, encouraging employees and individuals to report potential misconduct to the SEC.

SEC to start Fostering Cooperation by Individuals.

The Enforcement Division will increase incentives to encourage people to testify in SEC cases without fear of criminal prosecution or civil charges. As examples, the SEC is seeking an expedited process to submit immunity requests to the Department of Justice (the SEC is not authorized to grant immunity), as well as a means to provide witnesses with oral assurance that the SEC does not intend to file charges against them.

Increased SEC Resources Devoted to Analytics.

In an effort to dispel any notion that it is technically outmatched by sophisticated traders (e.g., hedge funds), the SEC announced that it is devoting more resources to keep pace by increasing its ability to conduct data-intensive surveillance. For example, the SEC is taking a close look at flash quotes, high-frequency trading, and other dark corners of the stock markets, and is enhancing training for its staff and recruiting additional professionals with expertise in trading, portfolio management, valuation, forensic accounting, information security, derivatives and synthetic products, and risk management.

Increased SEC investigations

Comparing the period from late January 2009 to September 2009 to the same period in 2008, the  SEC has:

Opened more investigations (1377 compared to 1290);

Issued more than twice as many formal orders of investigation (335 compared to 143);

Filed more than twice as many emergency temporary restraining orders (57 compared to 25); and

Filed more actions overall (458 compared to 359).1 

Overall, the SEC's Division of Enforcement is taking important steps to increase its effectiveness and its leaders have conveyed a clear message that they will ensure that SEC attorneys have the necessary tools and resources to investigate and pursue cases against alleged wrongdoers.

 

 

 

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