Priorities For the SEC’s Enforcement Division
Last week SEC Enforcement Division Director Andrew Ceresney,testified before Congress regarding the efforts of the Division and its requested for additional funding, highlighting its priorities (here). The Director began by telling the subcommittee that “A strong enforcement program is at the heart of the Commission’s efforts to ensure investor trust and confidence in the nation’s securities markets . . .” In the FY 2016 budget the Division is thus seeking to add 93 positions to be used for: 1) Expanding the Division’s data analytics; 2) hiring additional accountants, attorneys, industry experts and other professionals; and 3) hiriring additional experienced trial attorneys and support staff to prosecute “the Division’s expanding docket of complex litigation and trials.”
The Director then reviewed the Division’s priorities for the subcommittee. Those include:
Financial reporting: Here the Director discussed the creation of the Financial Reporting and Audit Task Force, noting that it is important to “develop methodologies and tools for detecting financial reporting issues, identify specific issuers with potential violations, determine whether further investigation is warranted, and refer appropriate matters to investigative staff across the Division.”
Investment advisers: In this area the Director noted that the Division has “recently launched a number of successful initiatives concentrating on areas that have traditionally received less attention, including custody rule violations, the adequacy of investment adviser compliance programs, and undisclosed adviser fees.”
Market structure, exchanges and broker-dealers: Working together with the Division of Trading and Markets and OCIE, and using technology to more effectively analyze data, the Division has “recently filed a number of actions against market participants that pose a risk to the markets by failing to operate within the rules. These include significant cases against exchanges and other trading platforms for violating rules governing their operation, broker-dealers for failing to live up to their obligations as gatekeepers providing direct market access, and other market participants for manipulative trading and related abuse.”
Municipal securities and public pensions: In this area, which has significance for the retail investor and public pensions, the Division has focused on “misrepresentations in connection with bond offerings, failures by underwriters to meet their obligations, undisclosed conflicts of interest, and pay-to-play violations . . . The Division also implemented a new self-reporting initiative . . .”
Insider trading: This area has long been an enforcement priority. Currently the Division’s efforts are aided significantly by “new technological tools developed internally that all us to identify suspicious trading patterns and connections between traders and potential sources from massive amounts of trading data.”
Foreign corrupt practices act: This traditional area of focus for the Division continues to be a priority. The Division and its FCPA unit are “bringing significant and impactful cases, often in partnership with its law enforcement and regulatory counterparts both at home and abroad,” the subcommittee was told.
Litigation and trial: The ability of the SEC to “successfully litigate cases is critical to its mission . . . When the Division goes to trial, we have had a strong record of success, despite the difficulty and complexity of our cases,” according to the Director.
Admissions: This was a key change in June of 2013 when the Division began requiring admissions to resolve select cases. Cases where this policy is used include those “where heightened accountability and acceptance of responsibility by the defendant are appropriate and in the public interest, including in cases where the violation of the securities laws involves particular egregious conduct; where large numbers of investors were harmed; where the markets or investors were placed at significant risk; where the conduct obstructs the Commission’s investigation; where an admission can send an important message to the markets; or where the wrongdoer poses a particular future threat to investors or the markets” the Director told the Subcommittee.