Tag: SEC

The SEC’s Busy Rule-Making Agenda

In many instances, the Dodd-Frank Wall Street Reform and Consumer Protection Act merely set a framework for financial reform and left much of the heavy lifting to the financial regulatory agencies. The SEC published their agenda for the implementation of Dodd-Frank.

It is a long list. Compliance leaders are going to very busy keeping track of the new regulations. The hard part is then figuring out how to implement them and get in compliance by the July 21, 2011 deadline set by the law.

Here is what the SEC wants to address in the next three months:

October – December 2010 (planned)

Diversity

  • §342: Establish new Office of Women and Minority Inclusion

Oversight of Investment Advisers

  • §§404 and 406: Propose (jointly with the CFTC for dual-registered investment advisers) rules to implement reporting obligations on investment advisers related to the assessment of systemic risk
  • §§407 and 408: Propose rules implementing the exemptions from registration for advisers to venture capital firms and for certain advisers to private funds
  • §409: Propose rules defining “family office”
  • §410: Propose rules and changes to forms to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation, as provided in the Act
  • §418: Propose rules to adjust the threshold for “qualified client”

Exempt Offerings

  • §413: Propose rules to revise the “accredited investor” standard
  • §926: Propose rules disqualifying the offer or sale of securities in certain exempt offerings by certain felons and others similarly situated

Derivatives

  • §712: Propose rules, jointly with the CFTC, regarding “mixed swaps”
  • §712: Propose rules, jointly with the CFTC, further defining key terms used in the Act
  • §712: Propose rules, jointly with the CFTC, concerning record-keeping by swap data repositories with respect to security-based swap agreements
  • §712: Propose rules, jointly with the CFTC, concerning record-keeping by swap dealers and major swap participants with respect to security-based swap agreements
  • §763: Propose anti-fraud rules for security-based swaps
  • §§763 and 766: Propose rules on trade reporting, data elements, and real-time public reporting for security-based swaps
  • §763: Propose rules regarding the registration and regulation of security-based swap data repositories
  • §763: Propose rules regarding mandatory clearing of security-based swaps
  • §763: Propose rules regarding the end-user exception to mandatory clearing of security-based swaps
  • §763: Propose rules for clearing agencies for security-based swaps
  • §763: Propose rules regarding the registration and regulation of security-based swap execution facilities
  • §764: Propose rules regarding the registration and regulation of security-based swap dealers and major security-based swap participants
  • §765: Propose rules regarding conflicts of interest for clearing agencies, execution facilities, and exchanges involved in security-based swaps
  • §766: Adopt interim final rule for reporting of security-based swaps entered into before the enactment of the Act

Clearing & Settlement

  • §805: Propose rules regarding standards for clearing agencies designated as systemically important
  • §806: Propose rules regarding the process to be used by designated clearing agencies to provide the SEC notice of certain proposed changes

Investor Advocate

  • §915: Establish new Office of the Investor Advocate; appoint Investor Advocate

Market Oversight

  • §916: Adopt streamlined procedural rules regarding filings by self-regulatory organizations
  • §929W: Propose revisions to rules regarding due diligence for the delivery of dividends, interest and other valuable property to missing securities holders
  • §956: Propose rules (jointly with other regulators) regarding disclosure of, and prohibitions of certain, executive compensation structures and arrangements

Enforcement

  • §922: Propose rules to implement a Whistleblower Incentives & Protection Program
  • §922: Report to Congress on Whistleblower Program
  • §924: Establish Whistleblower Office

Credit Ratings

  • §932: Establish new Office of Credit Ratings
  • §939B: Revise Regulation FD to remove exemption for entities whose primary business is the issuance of credit ratings

Asset-Backed Securities

  • §621: Propose rules prohibiting material conflicts of interests between certain parties involved in asset-backed securities and investors in the transaction
  • §941(c)(1): Report by the Federal Reserve Board, after consulting with the SEC and others, regarding the impact on each class of asset-backed securities on risk retention requirements
  • §941: Propose rules (jointly with others) regarding risk retention by securitizers of asset-backed securities, and implementing the exemption of qualified residential mortgages from this prohibition
  • §943: Propose rules regarding the use of representations and warranties in the asset-backed securities market
  • §945: Propose rules regarding asset-backed securities’ issuers’ responsibilities to conduct and disclose a review of the assets

Corporate Governance & Disclosure

  • §951: Propose rules regarding shareholder votes on executive compensation, golden parachutes
  • §951: Propose rules regarding disclosure by investment advisers of votes on executive compensation
  • §952: Propose exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; propose disclosure rules regarding compensation consultant conflicts
  • §1502: Propose rules regarding disclosure related to “conflict minerals”
  • §1503: Propose rules regarding disclosure of mine safety information
  • §1504: Propose rules regarding disclosure by resource extraction issuers

Administrative/Internal

  • §961: Report and certification to Congress regarding internal supervisory controls
  • §963: Public report on management’s assessment of the effectiveness of the agency’s internal controls over financial reporting
  • §967: Award Independent Consultant Contract

Municipal Securities

  • §975: Propose permanent rules for the registration of municipal advisors
  • §979: Establish new Office of Municipal Securities

Auditing

  • §989G: Request for public comment related to study regarding reducing the costs to smaller issuers (with market capitalization between $75 million and $250 million) for complying with §404(b) of the Sarbanes-Oxley Act of 2002, while maintaining investor protections for such companies

Hopefully there won’t be a sacrifice of quality giving that they need to deal with such a large quantity of new regulations.

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Why Is It Called a “Wells Notice”?

sec-seal

In 1972, SEC Chairman William J. Casey appointed a committee to review and evaluate the Commission’s enforcement policies and practices. Chairman Casey appointed John A. Wells, a lawyer at Royall, Koegel & Wells in New York, to the committee. He also added and former SEC Chairmen Manny Cohen and Ralph Demmler.  Chairman Casey asked Jack Wells to be the Chairman of the Committee specifically because he was not a securities lawyer,

Thus began what is now knows as the Wells Committee.

The Committee started its work in January 1972, and published a report with forty-three recommendations for the Commission in June of 1972. Of the 43 recommendation in the report, recommendation 7:

“The conduct of an investigation should remain with in the control of the Commission; where circumstances permit, however, the Commission should as a general practice give a party against whom the staff proposes to recommend proceedings an opportunity to present his own version of the facts by affidavit or testimony under oath.”

They further elaborated in the report:

“We recommend that, except where the nature of the case precludes, a prospective defendant or respondent should be notified of the substance of the staff’s charges and probable recommendation in advance of the submission of the staff memorandum to the Commission and be accorded an opportunity to submit a written statement to the staff which would be forwarded to the Commission together with the staff memorandum.”

The “Wells submissions” operate as a last chance for respondents to persuade the SEC staff that an enforcement recommendation is not warranted. If that fails, the Wells submissions are submitted to the Commission, along with a staff recommendation memorandum, so the Commission will have both sides of the story when it considers a recommendation for enforcement.

Who Came up With the Idea?

Former SEC Commissioner Paul S. Atkins gives credit for the concept to former Chairman Hamer Budge:

“In 1970, just months before Chairman Budge left the SEC, the Commission issued a memo to the all division directors and office heads regarding procedures to be followed in enforcement proceedings. The memo had two significant components: (1) it required the staff to get Commission approval before engaging in settlement discussions, and (2) it required the staff to provide a summary of the defendant’s arguments in a recommendation memo sent to the Commission. The latter requirement became a subject of study by the Wells Committee….”

The Wells Committee observed that “[a]s a practical matter, only experienced practitioners who are aware of the opportunity to present their client’s side of the case have made use of [such] procedures.”

Is a Wells Notice Required?

The recommendations of the Wells Committee were met with mixed responses. The Commission apparently felt hamstrung by the mandatory-sounding nature of the phrase “except where the nature of the case precludes.” They did not formally adopt the proposal. In SEC Release No. 5310 the Commission found that it would not be “in the public interest” to adopt a formal rule and instead should give notice on a strictly informal basis. The Commission “cannot place itself in a position where, as a result of the establishment of formal procedural requirements, it would lose its ability to respond to violative activities in a timely fashion.”

What’s in a Wells Notice?

From the SEC Division of Enforcement Enforcement Manual:

  • identify the specific charges the staff is considering recommending to the Commission
  • accord the recipient of the Wells notice the opportunity to provide a voluntary statement, in writing or on videotape, arguing why the Commission should not bring an action against them or bringing any facts to the Commission’s attention in connection with its consideration of this matter
  • set reasonable limitations on the length of any submission made by the recipient (typically, written submissions should be limited to 40 pages, not including exhibits, and video submissions should not exceed 12 minutes), as well as the time period allowed for the recipients to submit a voluntary statement in response to the Wells notice
  • advise the recipient that any submission should be addressed to the appropriate Assistant Director
  • inform the recipient that any Wells submission may be used by the Commission in any action or proceeding that it brings and may be discoverable by third parties in accordance with applicable law
  • attach a copy of the Wells Release, Securities Act Release No. 5310
  • attach a copy of the SEC’s Form 1662 (“Supplemental Information for Persons Requested to Supply Information Voluntarily or Directed to Supply Information Pursuant to a Commission Subpoena”)

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Private Equity and the Custody Rule

With the impending removal of the 15 Client Rule exemption from registration with the SEC, I was scratching my head trying to figure how to make the SEC’s new custody rule work for private equity.

The SEC recently updated its guidance on custody rule compliance truing to add clarity for advisers to pooled investment vehicles.

Here is one:

Question II.3

Q: If an adviser manages client assets that are not funds or securities, does the amended custody rule require the adviser to maintain these assets with a qualified custodian?

A: No. Rule 206(4)-2 applies only to clients’ funds and securities. (Posted 2003.)

Actually that does not help. A private equity fund will hold interests in private companies. Those interests may be stock, LLC interests or partnership interests.  Just because the company is private, those interests may still be securities.

For real estate private equity, the deeds to the underlying property would fall outside the custody rule. The intermediate entities, REITs and joint ventures may not fall outside the custody rule.

§ 275.206(4)-2(b)(2) has an exemption for certain privately offered securities, if the securities are:

(A) Acquired from the issuer in a transaction or chain of transactions not involving any public offering;
(B) Uncertificated, and ownership thereof is recorded only on the books of the issuer or its transfer agent in the name of the client;
and
(C) Transferable only with prior consent of the issuer or holders of the outstanding securities of the issuer.

This exemption is available only if the fund is audited, and the audited financial statements are distributed, as described in paragraph (b)(4) of this section.

The “uncertificated” requirement can be a problem. It is common practice for lenders relying on private company interests to require they be certificated to get better priority under the UCC.

The limits on transfer are a problem because as the holder of the interests, you want the flexibility to transfer interests.

The financial statements requirement is another extra burden, although may not be a problem for many funds. This requires:

  • annual audit
  • in accordance with GAAP
  • within 120 days of the end of the fiscal year
  • independent accountant registered and subject to inspection by PCAOB

(I’m not sure how quickly the SEC can change this rule if the Supreme Court rules PCAOB unconstitutional.)

In looking towards Capitol Hill, the Senate’s would exempt private equity firms from having to comply with the custody rule since they would not have to register. The House’s would not exempt private equity firms from registration and they would be subject to the custody rule.

One interesting aspect of the bills is that fund advisers that are currently registered because they have more than 15 clients/funds may no longer have to be registered if they fall under the venture capital fund advisers exemption or private equity fund advisers exemption. (Assuming those exemptions survive in the final bill.)

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Image of Old West Bank – It’s a beautiful bank is by oddsock

Feds Release Usable Model Consumer Privacy Notice

There was much cheering when federal regulators finally released their Final Model Privacy Notice Form back in November.

That was quickly followed by a gnashing of teeth when it turns out the regulators did not understand the concept of a form or how to use Adobe Acrobat. They merely created a static document that you would have to spend hours trying to recreate.

They finally released version of the model privacy notice that is a fillable form using adobe acrobat.

To obtain a legal “safe harbor” and so satisfy the Gramm-Leach-Bliley Act’s disclosure requirements, institutions must follow the instructions in the model form regulation when using the Online Form Builder.

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FINRA and Placement Agents

Will FINRA step in to prevent a ban on placement agents working with government investors?

You may remember that last August, the SEC published a proposed rule that would create a prohibition on paying a third party, such as a placement agent, to solicit a government client on behalf of the investment adviser: IA-2910. The rule has generated lots of comments. The intent of the proposed rule is to prevent “pay-to-play” scandals. A noble and worthy goal.

The SEC seems to be softening its position on the placement agent ban. In a December 18 letter, the SEC asked FINRA if they would interested in crafting some rules for registered broker-dealers in dealing with government investors. Legitimate placement agents (such as FINRA-registered broker-dealers) “could be subject to separate regulations that might restrict their ability to engage in pay to play activities on behalf of their investment adviser clients.”

It took three months, but FINRA responded to the SEC with a “yes“.

“I am delighted to state that we are in a position to promulgate such a rule. We believe that the FINRA proposal should impose regulatory requirements on member broker-dealer placement agents as rigorous and as expansive as would be imposed by the SEC on investment advisers. We believe that a regulatory scheme targeting improper pay to play practices by broker-dealers acting on behalf of investment advisers is both a viable solution to a ban on certain private placement agents serving a legitimate function.”

It sounds like SEC is getting closer on making a decision about its pay to play rule. Perhaps the FINRA rule will make it easier to deal with.

In the interest of disclosure, my company uses placement agents in its dealings with investors, including government investors.

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Did you “Make” an Untrue Statement under 10b-5?

The First Circuit threw out the SEC’s 10b-5(b) claim in SEC v. Tambone. This time it was the entire court after an earlier decision of a three judge panel reached the opposite decision.

The SEC alleged that James Tambone and Robert Hussey engaged in fraud in connection with the sale of mutual fund shares tied to market timing claims. The two were senior executives of a registered broker dealer, Columbia Funds Distributor, Inc. The prospectuses for the funds told investors that market timing was not permitted. Unfortunately, Tambone and Hussey permitted a number of customers to engage in market timing transactions. The SEC took the position that Tambone and Hussey were responsible for the false statements in the prospectuses since they commented on the market timing passages prior to their inclusion in the documents.

This case presents the two-part question of whether a securities professional can be said to “make” a statement, such that liability under Rule 10b-5(b) may attach, either by (i) using statements to sell securities, regardless of whether those statements were crafted entirely by others, or (ii) directing the offering and sale of securities on behalf of an underwriter, thus making an implied statement that he has a reasonable basis to believe that the key representations in the relevant prospectus are truthful and complete. The answer to each part of this two-part question is “no.”

Rule 10b-5(b), promulgated by the Securities and Exchange Commission under of section 10(b) of the Securities Exchange Act of 1934, renders it unlawful “[t]o make any untrue statement of a material fact . . . in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5(b).

The Tambone case turns on the meaning of the word “make” as used in Rule 10b-5(b). The SEC advocated “an expansive definition, contending that one may “make” a statement within the purview of the rule by merely using or disseminating a statement without regard to the authorship of that statement or, in the alternative, that securities professionals who direct the offering and sale of shares on behalf of an underwriter impliedly “make” a statement, covered by the rule, to the effect that the disclosures in a prospectus are truthful and complete.”

The court rejected the SEC’s position.

In 1994 the US Supreme Court held that private civil liability does not an aiding and abetting suit under Rule 10b-5 in the case of Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164. So private parties can only bring a suit against primary violators of Rule 10b-5. As a result of that decision, Congress amended the Exchange Act to make it clear that the SEC can bring a suit againstanyone who provides substantial assistance to a primary violator of securities laws. That is, the SEC can impose secondary liability.

The First Circuit decided that the SEC was trying to impose primary liability on Tambone and Hussey for conduct that would be a secondary violation (at most). The Court acknowledged that there is a split in the courts over the right test, but held that the facts of this case would fail both tests.

“If Central Bank is to have any real meaning, a defendant must actually make a false or misleading statement in order to be held liable [as a primary violator] under section 10(b). Anything short of such conduct is merely aiding and abetting.” Shapiro v. Cantor, 123 F.3d 717, 720 (2d Cir. 1997).

The next step is up to the SEC. They need to decide if they will appeal to the Supreme Court and use this case to try to reconcile the law in this area.

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New Anti-Money Laundering Guidance

Money Laundering is bad and financial institutions need to have internal controls policies, procedures and processes to identify higher-risk accounts and monitor the activity. At the core of an anti-money laundering program is that an institution must know its customers and the risks presented by its customers.

The program becomes more difficult when the customer is a corporation or legal entity.

An alphabet soup of federal regulators just jointly issued new guidance “to clarify and consolidate existing regulatory expectations for obtaining beneficial ownership information for certain accounts and customer relationships.” The Financial Crimes Enforcement Network, Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, Securities and Exchange Commission, and Commodity Futures Trading Commission all joined in the guidance.

Identifying the ownership and control of a legal entity can be difficult. Often, the only way to get the information is from the entity itself, with no third party way to identify the veracity of the information. Most financial institutions struggle with how far to dive into a legal entity to determine the beneficial ownership.

This joint guidance effectively adopts the FinCEN definition of beneficial owner:

“[T]he individual(s) who have a level of control over, or entitlement to, the funds or assets in the account that, as a practical matter, enables the individual(s), directly or indirectly, to control, manage, or direct the account. The ability to fund the account or the entitlement to the funds of the account alone, however, without any corresponding authority to control, manage, or direct the account (such as in the case of a minor child beneficiary), does not cause the individual to be a beneficial owner.” [31 CFR 103.175(b)]

The first step is to obtain enough information about the structure and ownership of the entity so you can determine if the account will pose a heightened risk. With a heightened risk, you should conduct enhanced due diligence.

Accounts for senior foreign political figures always require Enhanced Due Diligence that is reasonably designed to detect and report transactions that may involve the proceeds of foreign corruption. [31 CFR 103.178 (b)(2) and (c)]

The one interesting statement is that financial institutions should consider implementing policies on an enterprise-wide basis to share information about beneficial ownership of their customers. Anti-money laundering staff should be able to cross-check for information with other departments. Avoid silos of information.

The guidance does not offer anything new or insightful. But it is good to see the regulators joining together to try to standardize the expectations across different types of financial institutions.

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Image is by AlwaysAwake: Money Laundering: Hiding ownership and profits in offshore jurisdictions using myriad mechanisms in Switzeland, money laundering capital of the world, & other islands and nations. Favorite tool of mega-rich arch-criminal banking & corporate investors

SEC Commissioner is a Blog Commenter

So you write a blog post about the fiduciary duty of financial service providers to their clients. Actually, the real story is about the lack of fiduciary duty that brokers have to their customers. Then an SEC Commissioner chimes in.

Tara Siegel Bernard writes for New York Times blog, Bucks: Making the Most of Your Money. On February 16 her post was Will You Be My Fiduciary? Her proposal was to arm consumers with fiduciary rights, regardless of what the law says. Merely ask our provider to sign a fiduciary pledge so they have a contractual obligation to be a fiduciary.

Perhaps to her surprise, she got a comment from Elisse Walter, Commissioner, Securities and Exchange Commission:

This well-written, easy-to-understand proposal captures the way that all financial professionals should treat investors. It recognizes that all financial professionals should be subject to a fiduciary duty. And in a simple and straightforward way it articulates the scope of the duty and cuts through what has become non-productive debate on this issue.

This articulation allows us to move on to another critical issue: financial professionals are unfortunately subject to different obligations when they are performing virtually identical services for investors. For example, a person cannot start a brokerage firm unless she demonstrates to a securities regulator that she has the expertise and operational capacity to engage in the type of business she proposes to start. No equivalent process exists for investment advisers. And, the law requires an adviser to disclose to his client the full range of circumstances where their interests may conflict, while the law governing brokerage firms does not impose that blanket obligation.

These are only two examples of the obligations that should be harmonized. I’m ready to see us get on with that work.

According to a message I got from Mark Story, the SEC’s Director of New Media, it’s only the second time that a senior-level SEC official has commented in a public forum.

The first was when former SEC Chairman Christopher Cox commented on a blog post by Jonathan Schwartz: Sunlight on a Cloudy Day….

It looks like an SEC Commissioner posts a blog comment every three and half years. Plan ahead for 2013.

Actually, I’m surprised that the SEC Commissioners have commented at all. I recognize that high-level government officials have to be much more cautious about what they say in a public forum. They run into a similar problem with the dissemination of information that public companies have with Regulation FD. Surprisingly (or not), that just so happens to be the subject of that first SEC comment.

Questions and Answers with Robert Khuzami

After the news conference announcing the Rearrangement of its Enforcement Program, the Securities and Exchange Commission offered a group of bloggers the chance to ask questions to Robert Khuzami, the Director of Enforcement. (It must have felt like Obi-Wan stepping into the cantina full of low-life scoundrels.)

The blogging participants:

Mr. Khuzami let us know that the specialized units and cooperation initiatives came out of the self-assessment they conducted last year. Now that the heads of the new units have been made, those heads will start filling out their ranks.

Bruce started off questions by asking for more information on the new Office of Market Intelligence. This unit is combining two existing units, Market Surveillance and Internet Enforcement. It sounds like this will be a big source of information flow for the SEC with lots of complaints and charges coming in one place, getting filtered and sent to the right people for the appropriate action.

I asked about the creation of the new specialized units which are great for expertise, but may push information into silos. Mr. Khuzami pointed out that one of the current problems is that information is currently too diffuse across the SEC. There is a going to be hybrid approach. Not everything is going to end up in these units. He thinks expertise is very important. These units are going to be national in scope, so the people will spread out across the regional offices.

Laura Richman wanted to know if the SEC Commissioners are going to be comfortable with the new cooperation protocols. The enforcement division can only make a recommendation. It’s up to the Commission to decide whether to prosecute or settle. (This is unlikely to give the warm fuzzies to someone who is thinking about acting as a whistleblower or a company cooperating with an issue.)

Todd Sullivan was surprised that the cooperation initiatives were not already available to the SEC. Mr. Khuzami pointed out that criminal prosecutions have used cooperation strategies for a long time. It’s a new concept to civil proceedings.

Cate wanted to know if the SEC could develop the experience or tools to differentiate between proprietary trading versus market making. The SEC wants better information.

Francine wanted to know if the SEC will step up its enforcement actions against the accounting firms. Timeliness is key. If there is a long time between the misconduct and the prosecution, then there is a lost opportunity to stop others by setting an example.

Mr. Khuzami pointed out the SEC has been through a tough year but his group wants to use their professional skills and do good work. He thinks the Division is coming together and moving forward in a positive direction.

I want to thank Mark Story, the SEC’s Director of New Media, for inviting me to the press conference and Rob (I think I can call him that now) for taking the time to talk with us.

SEC Rearranges its Enforcement Program

The Securities and Exchange Commission reorganized its enforcement division. Enforcement Director Robert Khuzami announced a new program announced the creation of new units.

First, the SEC are expanding the whisteblower program. They are calling it a “cooperation program.”

Then there are five new units in the enforcement division.

Asset Management Unit

The unit specializing in asset managers, including hedge funds and private-equity firms, is set to be jointly run by Bruce Karpati, who has run the agency’s hedge-fund working group for the past several years, and Robert Kaplan, another SEC veteran.

Mr. Karpati was founder and head of the SEC’s Hedge Fund Working Group, and has served as Assistant Regional Director for the New York Regional Office of the SEC. Earlier, he was a Branch Chief and Attorney in the Division of Enforcement at the agency. Previously, Mr. Karpati was an Associate at Dechert LLP in Washington, D.C..

Mr. Kaplan has served as Assistant Director of the SEC’s Division of Enforcement. He previously held positions as Assistant Chief Litigation Counsel and Senior Counsel/Staff Attorney in the Division. Earlier, he was an Associate with Morgan, Lewis & Bockius LLP in New York.

Market Abuse Unit

Daniel Hawke, head of the Philadelphia office, was selected to run the market abuse unit, which will focus on insider-trading and market-manipulation cases.

Mr. Hawke is Director of the SEC’s Philadelphia Regional Office. He joined the SEC’s Philadelphia office as Associate Regional Director, and previously served in the Washington, D.C. office as Branch Chief and Staff Attorney in the Enforcement Division. Earlier, he was a Litigation Partner at Tucker, Flyer & Lewis LLP in Washington, D.C.

Structured and New-products Unit

Kenneth Lench will run the structured and new-products unit, which will focus on derivatives and newly developed products.

Mr. Lench has served as Assistant Director, Branch Chief, Assistant Chief Counsel, and Senior Counsel/Staff Attorney with the SEC’s Division of Enforcement. Earlier, he was a Senior Attorney with the SEC’s Division of Corporation Finance, and an Associate with Sills Cummis P.C. in Newark, N.J.  (Mr. Lench I have the same college/law school combination:  J.D. from Boston University School of Law, and a B.A. from Brandeis University.)

Foreign Corrupt Practices Act Unit

Cheryl Scarboro will be named chief of the agency’s unit that investigates foreign bribery by corporations.

Ms. Scarboro has served as Associate Director, Assistant Director, Deputy Assistant Director, and Staff Attorney in the SEC’s Division of Enforcement. She also was Counsel to SEC Chairman Arthur Levitt, Jr.. Earlier, she was an Associate at Sutherland, Asbill & Brennan LLP in Washington, D.C.

Municipal-Securities and Public Pension Unit

Elaine Greenberg, a veteran of the Philadelphia office, has been tapped to run the municipal-securities unit. This will also include the new focus on pay-to-play.

Ms. Greenberg is the Associate Regional Director of the Philadelphia Regional Office of the SEC and has served as the Co-Chair of the Division’s national Municipal Securities Working Group. Earlier, she was Assistant Regional Director, Branch Chief, and Staff Attorney in the Philadelphia office.

Beyond these five new units there are two other initiatives.

Office of Market Intelligence

The SEC also created a new Office of Market Intelligence that will assume the responsibilities of the Internet enforcement unit and add new duties, such as handling tips and referrals. Tom Sporkin will lead this office.

Cooperation

The SEC also wants to encourage greater cooperation from individuals and companies in the agency’s investigations and enforcement actions. The new cooperation tools, not previously available in SEC enforcement matters, include:

  • Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.
  • Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.
  • Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.

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