We are in a time of transition at the Securities and Exchange Commission. There are two vacancies on the Commission and Chair Mary Jo White has announced her departure. Although there are changes coming to the highest level of the SEC, the vast majority of the SEC personnel are staying in place and continuing their efforts to protect investors.
During Chair White’s confirmation hearings, she pledged to would pursue a “bold and unrelenting” enforcement agenda as SEC Chair. That was combined with a change in the way enforcement approached cases.
Investigate to Litigate – The SEC staff is coached to conduct all investigations with litigation in mind. During investigations, staff will focus on acquiring admissible and persuasive evidence
Use of Data Analytics to Uncover and Investigate Misconduct – These efforts have resulted in at least nine insider trading cases originating solely from leads generated by these types of tools, many others in the pipeline, and dozens of other cases being expanded using these tools to identify additional unlawful trading
Using Whistleblowers to Detect Misconduct – The SEC recently surpassed the $100 million mark for awards to whistleblowers, and tips in fiscal year 2016 surpassed 4,200, rising over 40 percent from 2012, the first fiscal year the program was in place.
Focusing on Individuals – Holding individuals liable for wrongdoing is a core pillar of any strong enforcement program.
The SEC’s Admissions Policy – In a first for a civil financial regulator, we announced in June 2013 that the SEC would begin to require admissions as a condition for settlement in certain types of cases, including cases with harm to large numbers of investors or significant risk of harm to the market, where the settling party engaged in egregious conduct or obstructed Commission investigations, or where admissions would significantly enhance the deterrent message of the action.
Impact of SEC Enforcement Activity – We have also, however, increasingly brought cases – including those involving negligent actions – that harm investors in other important ways that can be remedied through changes in industry practices in response to our actions, thus benefiting huge segments of investors beyond those harmed in a specific case.
In this last area, Chair White highlights the effect of enforcement on private equity.
“Over the past three years, we have brought 11 actions against private equity advisers for undisclosed fees and expenses, impermissible shifting and misallocation of expenses, and failure to adequately disclose conflicts of interests to clients. Our strong sense from exams and industry discussions is that, through the Commission’s focus on these problematic practices, we have helped to transform the level of transparency of fees, expenses, and conflicts of interest, and have prompted very meaningful change for the benefit of investors.”
Sources:
- A New Model for SEC Enforcement: Producing Bold and Unrelenting Results
- States, Cities to Ask SEC to Beef Up Disclosures for Private-Equity Firms, Wall St. J. (Jul. 21, 2015),
- Buyout Firms Disclose More Fees, Wall St. J. (Nov. 20, 2014)