Last week, at PLI’s annual “SEC Speaks” conference, SEC Chairman Cox outlined the Commission’s agenda for 2008. Since, as the Chairman noted, the Commission is an enforcement agency, he began with enforcement.

What the Chairman outlined was hardly the type of aggressive agenda one might expect from an agency that is about enforcement. To be sure, the Chairman hit on key topics such as the sub-prime crisis, the agency’s focus on hedge funds and other large private traders and possible insider trading and on micro-cap fraud. The speech offered little else in terms of an agenda, however.

No doubt, the 100 or so staff people the Chairman indicated are working on the sub-prime task force are hard at work. The Commission, however, has yet to bring a case. At the same time, there is no doubt that the agency is hard at work on tracking down just whatever it thinks those hedge funds have been doing. While it is at it, however, the Commission should seriously rethink the Section 5 sale of unregistered securities theory it has been using in its PIPE cases involving hedge funds. Three straight losses in court should be an indication that the legal theory on which those charges are based need serious revamping as discussed earlier here.

Another thing which seems to require revamping is the Enforcement Division’s internal processes. Those came under serious scrutiny last year in the Senate report on the ill-fated Pequot Management investigation discussed here. That report called for the Commission to implement substantial changes to improve the Enforcement Division. While Chairman Cox did discuss some improvements in procedures, the Commission has yet to finish its second effort at an internal investigation into the affair. This apparently has left at least some members of Congress baffled as reported by Liz Moyer in a recent Forbes article.

Not only has the Commission’s internal investigation not been completed, but perhaps more importantly, the calls for reform within the Enforcement Division by the report appear to have gone unheeded. To be sure, Chairman Cox in his speech at the PLI program discussed some improvements such as the program he calls “The Hub,” which is a mechanism to give every staff attorney access to the case files and learn what is going on around the agency. Tellingly however, the Chairman did not mention the kind of reforms sought by the Senate report.

Also absent from the Chairman’s comments was any reference to the type of reforms that have been suggested by SEC Commissioner Atkins. In various speeches, Commissioner Atkins has called for improved enforcement procedures in areas such as cooperation credit (here), and the adoption of a manual of procedures and an open jacket policy (here). Not only is this disappointing, but it leaves one to wonder just where the Enforcement Division is heading. Despite the Chairman’s speech about the 2008 agenda, the question for this week in Securities Litigation has to be “Where is the SEC and its Enforcement Division heading?”

In discussing the SEC’s enforcement program last week, Commissioner Atkins advocated that the Enforcement Division have a Manual similar to that of the U.S. Attorney’s Office and that it include an open jacket policy. Neither idea is new, but both have sound merit. Speech by SEC Commissioner Paul S. Atkins: Remarks to the “SEC Speaks in 2008” Program of the Practising Law Institute.

First, as Commissioner Atkins noted, a manual would help the Enforcement Division “achieve greater predictability.” A Manual would help create an aura of fairness regarding the Division’s policies by bring transparency. That, of course, should be a key goal for a disclosure agency. It would also implement one of the findings of the Senate Report from the ill-fated Pequot Capital Management investigation last year which recommended that the division have established procedures (discussed here).

Second, Commissioner Atkins is also clearly right about an open jacket policy. Under such a policy those about to be accused would have an opportunity to review the evidence on which that accusation is based. This would be a refreshing process for all. This procedure, long used by criminal prosecutors, would facilitate settlement discussions when appropriate by placing all the parties on a level playing field. Where settlement is not possible, it would also improve the Wells process. It is standard now that in a Wells submission the arguments should focus on legal issues and policy, if for no other reason than the person making the submission is typically only aware of a small portion of the evidence the staff has accumulated. If, however, there is an open jacket policy, a person facing a possible accusation of wrong doing would be able to argue the facts where appropriate. As Commissioner Atkins noted, having the government show the accused its evidence “is called due process.”

An open jacket policy might also save the Commission from costly errors – and some from a wrongful accusation by a law enforcement agency which will leave a lasting stigma even if the person is vindicated. This was precisely the situation last year in SEC v. Todd, Civil Action No. 03 CV 2230 (S.D. Cal). There, the Commission, in part, accused former Gateway computer executive John Todd of violating Section 17(a) in connection with a prospectus supplement filed with the SEC which was later incorporated into a Form 10Q. Although the SEC represented in its brief that there was “no dispute that [Mr.] Todd signed a prospectus offering,” the Court found that “the prospectus supplement was unsigned. The SEC presented no other evidence connecting Mr. Todd to the supplement.” (discussed here). An open jacket policy might have avoided an embarrassing loss for the Commission and the angst undoubtedly suffered by Mr. Todd from the wrongful allegation.

Many criminal prosecutors have used an open jacket policy for years. And, some SEC offices have experimented with it. Like the adoption of a Manual, there is no good reason not to have an open jacket policy. Commissioner Atkins is right: the time has come for both of these ideas.