Robert Khuzami, director of the Division of Enforcement of the Securities and Exchange Commission (SEC), recently announced plans to increase the SEC’s enforcement efforts with the introduction of five national specialized units in the Division that will be dedicated to particular areas of securities law. Each unit will have a unit chief, and will be staffed nationally with people with expertise in a specific area.
The Asset Management Unit, which will work closely with the Office of Inspections, Compliance and Examinations, will focus on investment advisers, investment companies, hedge funds and private equity funds. Khuzami said that potential areas of focus for the unit may include disclosure, valuation, portfolio performance, due diligence and diversification, transactions with affiliates, misappropriation and conflicts of interest.
The Market Abuse Unit will focus on large-scale market abuses and complex manipulation schemes by institutional traders, market professionals and others. Khuzami said that the unit plans to build and use technological tools and screenings to analyze trading and activity across markets, allowing it to recognize patterns and relationships that it might not otherwise.
The Structured and New Product Unit will focus on complex derivatives and financial products, including credit default swaps and collateralized debt obligations and securitized products, while the Foreign Corrupt Practices Act Unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. The fifth addition will be the Municipal Securities and Public Pensions Unit. Khuzami said that there are a number of areas that the unit will likely scrutinize, including offering and disclosure issues, tax and arbitrage-driven activity, unfunded or underfunded liabilities, and “pay to play” schemes.
In addition to these new units, effective August 11, 2009, the SEC amended its rules for one year to give enforcement staff the ability to issue subpoenas in connection with investigations under federal securities laws. In the past, the SEC would issue formal orders of investigation that authorized specifically-designated enforcement staff to exercise the SEC’s statutory power to subpoena witnesses and take other related actions. The SEC is delegating the authority to issue formal orders of investigation to the Director of the Division of Enforcement, who will in turn delegate that authority to senior officers throughout the Division. This delegation will expedite the investigative process by reducing the time and paperwork previously associated with obtaining SEC authorization prior to issuing subpoenas. At the end of one year (i.e., August 11, 2010), the SEC will evaluate whether to continue delegating that authority.
The Division is also streamlining its management structure with a number of internal changes, including redeploying branch chiefs to conduct investigations, and delegating the power to approve all routine case decisions to Division senior officers. In addition, Khuzami’s approval will now be required for all tolling agreements.