This Week In Securities Litigation (February 8 to 14, 2008): The SEC’s 2008 Enforcement Agenda
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?”