Last week, Chairman Mary Schapiro of the U.S. Securities and Exchange Commission (the "SEC") gave a speech at Practicing Law Institute's "SEC Speaks in 2012" program. Chairman Schapiro addressed a number of organizational changes that have been implemented at the SEC in the wake of the financial crisis and as a result of efforts to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. In particular, she highlighted the new National Examination Program developed by the SEC's Office of Compliance Inspections and Examinations ("OCIE"). The National Examination Program has as its goals (i) detecting possible violations of securities laws and regulations; (ii) fostering strong compliance and risk management practices; (iii) monitoring risk; and (iv) providing the SEC and its policy divisions with information about the industry's compliance and the implementation of rules and laws. Chairman Shapiro highlighted how the National Examination Program has changed the process for assembling examination teams, which now seeks to match the examiner's skills with the nature and complexity of the business operated by the examinee. She also noted that OCIE and the Division of Risk, Strategy, and Financial Innovation have worked together to establish a risk-based approach to target examinations. According to Chairman Schapiro, since 2009, better targeting and more effective examinations have led to a one-third increase in the identification of significant findings during exams, with a fifty percent increase of referrals to the SEC's Division of Enforcement (the "Division").

Chairman Schapiro also spoke about various changes within the Division. In particular, she highlighted the creation of the Asset Management Unit. The Asset Management Unit launched the Aberrational Performance Inquiry initiative, whereby the Division now uses proprietary risk analytics to evaluate hedge fund returns for performance that appears inconsistent with a fund's investment strategy or other benchmarks. Inconsistencies found lead to further scrutiny from the Staff. In particular, Chairman Schapiro noted that the Aberrational Performance Inquiry initiative led to four managers being charged last December with inflating returns and overvaluing assets. She also highlighted the Asset Management Unit's efforts to survey social media, which led to an investigation that uncovered an attempt by an adviser to offer fictitious securities through various websites. Chairman Schapiro reported that the SEC brought 735 enforcement actions last year, obtained orders for $2.8 billion in penalties and disgorgements, and returned more than $2 billion to investors.

A transcript of the Chairman's speech can be found here. We will continue to keep you apprised of any developments in this important area.