In a February 6 address to Practicing Law Institute’s “SEC Speaks in 2009”, Mary L. Shapiro, the new Chairman of the Securities and Exchange Commission, outlined a number of enforcement changes she has initiated and provided a preview of some planned regulatory initiatives.  

Acknowledging criticism of the SEC enforcement function, Shapiro indicated that she is immediately taking action to end the SEC’s two-year “penalty pilot” program which had required the Enforcement Staff to obtain Commission authorization before negotiating a settlement involving civil monetary penalties for public companies in securities fraud cases. She stated that this pre-approval process had resulted in significant delays in settlements and sometimes resulted in reductions in the size of the penalties imposed. Empowering the Enforcement Staff to negotiate penalties without requiring prior approval from the Commission itself will, she stated, expedite the SEC’s enforcement efforts. Another immediate change to the SEC’s enforcement protocols is to streamline the process by which the Enforcement Staff obtains subpoenas to compel witness testimony and the production of documents. Currently, formal orders of investigation (without which subpoenas cannot be issued) are subject to full review of all five Commissioners, requiring advance notice with resulting delays. Shapiro indicated that she had given direction for the SEC to return to an earlier policy of timely approval of formal orders of investigation by seriatim Commission approval or, where appropriate, by a single Commissioner acting as duty officer. Additional enforcement measures, she stated, include improving the handling of tips and whistleblower complaints and focusing on areas where investors are most at risk.  

As to regulatory and governance matters, Shapiro outlined an agenda which included improving the quality of credit ratings (the SEC recently released final rules and re-proposed rules with respect to credit rating agencies, as described in the February 6, 2009, edition of Corporate and Financial Weekly Digest); supporting a centralized clearing house for credit default swaps; improving the quality of audits for non-public broker-dealers; promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser; and forming an Investor Advisory Committee “to ensure that the Commission hears first hand about the issues most concerning to investors”.