Mary Jo White promised Congress she would pursue a "bold and unrelenting" enforcement program as Chairman of the Securities and Exchange Commission ("SEC"). In public remarks last week, White reiterated her desire for the Enforcement Division "to be everywhere" and to be "felt and feared" in areas beyond where its resources can reach. Now, six months into her tenure, it is time to take measure of what this new enforcement model may mean for public companies.

Seeking Admissions

Perhaps the best example of this more-is-better approach to enforcement is the move away from the Commission’s traditional "neither admit nor deny" settlement policy. This practice – born out of a 1972 rulemaking – had been consistently followed by the Commission (and other federal agencies) for decades. But in 2012, responding to criticism from at least one federal judge, the Commission changed this policy as applied to parties that had pled or been found guilty in related criminal proceedings. In September, White announced she would seek admissions of wrongdoing in certain cases even where there had been no findings of guilt in related proceedings.

Recent settlements with financial institutions like Harbinger Capital Partners, where the parties made limited admissions of some wrongdoing, demonstrate that the Commission means what it says in seeking admissions in certain cases. But the standard for when the Commission may seek such admissions remains unclear. In recent public statements, White indicated the Enforcement Division would seek admissions where the conduct was "egregious" or where it posed "significant risk" to investors, or where necessary to send "an important message." These stated reasons, though sound, hardly provide a clear standard to apply to future matters. Time will tell whether this new policy – with all its impracticalities– can be applied beyond only rare cases.

Being Everywhere

In public remarks replete with martial references to "boots on the ground" and "force multipliers," White has spoken of her desire for the SEC – and in particular its enforcement program – to "be perceived to be everywhere." She plans to achieve this omnipresence through leveraging the authority of the Commission over various third parties in the financial industry.

First, White understands the power of an effective whistleblower program. The SEC’s Office of the Whistleblower, established in 2011 under Dodd-Frank, was slow to get off the mark. The SEC granted its first whistleblower award in August 2012, for a nominal amount. But earlier this month, the Commission announced an award of more than $14 million to a single individual. This large cash payout– which has been called a "game changer" by some – will undoubtedly draw employees in some public companies into trying to be the next to "hit the lottery" of a whistleblower award.

Congress intended to create this very kind of incentivizing through the whistleblower provisions of Dodd-Frank. It worked. The SEC received more than 3,000 tips in FY 2012 alone. This ghost army of whistleblowers has the effect of extending the reach of the Enforcement Division, potentially detecting or deterring some frauds before they mushroom. There is also reason to believe that the advent of the whistleblower process has led some institutions to strengthen their own compliance programs.

Second, White seeks to extend the reach of the Enforcement Division through bringing pressure on the "gatekeepers" of the financial system. Auditors of public companies, who have never been far beyond the gaze of the SEC, will now receive increased attention through a program dubbed "Operation Broken Gate." The SEC has also shown a desire to pursue other "gatekeepers" in the financial services industry, including attorneys and transfer agents. The administrative proceeding brought against certain mutual fund directors for failing to supervise the fair valuation procedures of those funds, which was settled earlier this year, highlights the Commission’s willingness to expand the traditional scope of liability for securities violations.

Covering the Market

As part of the effort of being perceived to be everywhere, White has emphasized the need for the enforcement program to cover "the whole market" and to bring actions for violations in "every market participant category." To achieve this, the Commission is said to be refocusing efforts in such traditional areas as accounting fraud, insider trading, and penny stock fraud. Over the summer, the Commission announced the formation of new "task forces" in some of these areas, including a Financial Reporting and Audit Task Force and a Microcap Fraud Task Force. Accounting fraud and penny stock abuses are, of course, familiar ground for the SEC, but the Commission reports it will be using technology-based tools to identify trends and strengthen enforcement efforts.

Six Months In

Mary Jo White has unquestionably brought energy and vigor to the SEC, with particular focus on the Enforcement Division. She wants the SEC to be a "tough cop" and her views on many issues are clearly influenced by her years in law enforcement. Her new initiatives in areas such as financial reporting, microcap fraud, and insider trading do not bring the Commission into territory it did not cover already. Time will tell if the renewed focus in these core areas, and the integration of new analytic technologies, will be the "force multiplier" she hopes. In the end, the only true measure of success may be (as it always has been) the tally of cases the Commission is able to bring and favorably resolve. Then we will know the true meaning of "bold and unrelenting" enforcement from the new SEC.