In response to severe criticism from investors and politicians, the SEC has undertaken steps to help reduce the chances that frauds such as the Madoff Ponzi scheme will not occur or go undetected in the future. Those steps include:
Restructuring of the SEC's Enforcement Division: With the appointment of a new Enforcement Director, the SEC has restructured this division to better focus on cases that are likely to have a significant impact. This restructuring is intended to help reduce bureaucracy and speed up the enforcement process by removing a layer of management. Specialized units will be included to concentrate in focused areas and help detect patterns, trends, and motives. Finally, streamlined internal processes will be implemented to make the investigative process more efficient.
Encouraging Insiders' Cooperation: The SEC is working on agreements to encourage the cooperation of individuals who are on the "inside" of companies engaged in fraudulent activity. These agreements will purportedly provide that insiders who offer truthful evidence and agree to cooperate and testify would be eligible for a possible reduction in sanctions. Such agreements would be expected to provide the SEC with witnesses and key information in enabling the agency to build stronger cases more quickly.
Conducting Risk-Based Examinations of Financial Firms: The SEC has instructed its examiners to conduct a "sweep" of certain firms to determine that the clients' assets in fact exist. Such firms include advisers whose clients' assets are held with an affiliate; hedge funds that seem to have unrealistic returns; firms that use an unknown auditor or no auditor at all; firms with a regulatory history; and broker-dealers that sell an affiliate's hedge fund.
Recruiting Staff With Enhanced Experience in Detecting Fraud: The SEC is in the process of expanding its staff to include persons with diverse skill sets to expand its knowledgebase and improve its ability to assess risk, conduct examinations, detect and investigate wrongdoing, and focus the SEC's priorities. The specialized personnel will include new staffers for the examination unit who have experience in trading, operations, portfolio management, options, compliance, valuation, new instruments and portfolio strategies, and forensic accounting, and those with expertise in current financial products and techniques. Improving Internal Controls: Both the SEC's examination unit and Enforcement Division has implemented a periodic review program to help ensure that important issues are thoroughly resolved in a timely manner and that no investigation falls through the cracks. Seeking More Funding: The SEC has been asking Congress for additional funding to hire more examiners to conduct on-site examinations and more enforcement staff to bring more enforcement cases.
Integrating Broker-Dealer and Investment Adviser Examinations: The SEC has instituted certain measures to integrate its broker-dealer and investment adviser examination programs. It is expected that a team of examiners, taken from both the broker-dealer and investment management units, will together examine selected firms.