On Friday, in a speech before the annual Practicing Law Institute’s forum “SEC Speaks in 2009,” the new Chairman of the SEC, Mary Schapiro, announced two major modifications to the SEC Enforcement Division’s procedures.
The first change is the elimination of the pre-approval requirement in cases involving civil money penalties against public companies. A “pilot program,” implemented by former Chairman Christopher Cox, required the Enforcement Division to obtain authorization from the full Commission before negotiating civil monetary penalties within a proposed range. This requirement has been criticized for adding delay to the settlement process. Recently, Commissioner Luis Aguilar argued that the pre-approval requirement limited the discretion of the enforcement staff, making “the process of seeking a penalty against a corporate issuer more onerous.” Chairman Schapiro agreed, stating in her speech “[a]t a time when the SEC needs to be deterring corporate wrongdoing, the ‘penalty pilot’ sends the wrong message.”
The second change announced by Chairman Schapiro is the streamlining of the process for Commission approval of requests for subpoena power by the SEC staff. To this end, she announced that the SEC will return to a policy of allowing for timely approval of formal orders by either seriatim approval or by a single Commissioner acting as a duty officer. Chairman Schapiro stated that “[i]n investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly.”
Chairman Schapiro stated that these changes are designed to “empower” the Enforcement Division. They clearly signal her intent to fulfill the promise of increased enforcement that she made to lawmakers in her confirmation hearing.
Chairman Schapiro also outlined other regulatory responses to the current turmoil in financial markets:
- Addressing the inherent conflicts of interest credit rating agencies face as a result of their compensation models
- Reducing systemic risk to investors and markets by promoting and regulating a centralized clearinghouse for credit default swaps
- Strengthening risk-based oversight of broker-dealers and investment advisers
- Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.