Commissioners and other top officials of the Securities and Exchange Commission addressed the public on February 24-25 at the annual SEC Speaks conference in Washington, D.C. The presentations covered a wide array of topics but common themes included the Commission's work on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, cross-border regulation and enforcement, and the early impact of the SEC's whistleblower program.  From a litigation and enforcement perspective, the comments of interest included the following:

  • SEC Chairman Mary Schapiro highlighted several areas of focus for the SEC, including the Office of Compliance Inspections and Examinations' (OCIE) new risk-based approach of targeting regulated financial institutions for examinations through the use of aberrational return analyses, which she referred to as "aberrational sweeps." She noted that the exams identified significant failings at 42% of the firms inspected, and said that there has been a significant increase in the OCIE's referrals to the SEC's Enforcement Division. In addition, she highlighted the fact that the SEC's Division of Enforcement had a record year, bringing 735 enforcement actions and recovering $2.8 billion in disgorgement and penalties. Chairman Schapiro also highlighted the SEC's new whistleblower bounty program, commenting that it has led to "hundreds of high quality tips."
  • Sean McKessy, Chief of the SEC's Office of the Whistleblower, said that his office has received approximately 2,000 calls to the SEC's whistleblower hotline since May 2011, and is currently processing for payment 230 applications under the new bounty rules. He also explained, in response to criticism that the new rules would cause whistleblowers to side-step companies' internal SOX reporting processes, that based on his own review of the whistleblower complaints to date, a majority of whistleblowers indicated on the SEC's whistleblower reporting form that they had also reported the issue to their employer.     
  • David Bergers, Director of the SEC's Boston Regional Office, explained that in 2011 the Division of Enforcement entered into cooperation agreements with 37 witnesses, including some companies. The Division of Enforcement also entered into its first-ever non-prosecution agreement in 2011, referring to the Carter's case,[1] and three deferred prosecution agreements, referring to agreements with Freddie Mac, Fannie Mae and Tenaris S.A. Bergers stated that the Commission considers four factors when determining whether an agreement is appropriate: (1) the assistance actually provided by the individual or entity including whether it was substantial, timely, or voluntary; (2) the overall importance of the matter; (3) the societal interest in holding the individual or entity responsible for potential securities law violations; and (4) the appropriateness of an agreement with an individual or entity considering past behavior and the potential for future violations. He did not state that a company would be required to waive the attorney-client privilege to qualify for a non-prosecution agreement, and the SEC did not require Carter's to do so in its agreement. 
  • Bergers also noted the SEC's efforts to streamline the process of issuing Wells notices and deciding whether to file cases. He cited Section 929U of the Dodd-Frank Act and its requirement that the Commission decide whether to formally file an action against a person or entity no later than 180 days after the date that the Wells notice is sent. He also called attention to the Enforcement Division's policy of limiting Wells notice recipients to one "post Wells" meeting with Commission staff.
  • Merri Jo Gillette, Regional Director of the SEC's Chicago Office, highlighted the fact that the Dodd-Frank Act now allows the SEC to pursue aiding and abetting claims based on reckless (in addition to knowing) conduct, and said that the SEC would continue to pursue such actions against accountants and lawyers (so called "gatekeepers").  During a separate session, Andrew Calamari, Associate Regional Director of the SEC's New York Office, echoed Gillette's comments noting that gatekeepers such as accountants and lawyers would remain a focus of the SEC in 2012. He pointed to the fact that the SEC recently charged an audit committee for "willful blindness" to red flags regarding major accounting fraud and misappropriation of assets.    
  • Division of Enforcement Chief Counsel Joseph Brenner discussed the impact of the Supreme Court's decision in Janus Capital Group v. First Derivative Traders, on the Division's day-to-day analysis of whom to charge and what charges to bring. Janus held that the "maker" of a statement under Section 10(b) is "the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it." Brenner stated that the Janus decision has not affected "who" is getting charged, but has affected "what charges" the SEC brings. He noted that the SEC is utilizing alternatives to traditional "primary liability," including aiding and abetting and control person liability.  He also emphasized that the SEC's position is that Janus does not apply to any statutes or rules other than Rule 10b-5(b).
  • The SEC's Chief Litigation Counsel, Matt Martens, defended the SEC's "no admit, no deny" settlement policy. He stated that it would be a mistake to refuse settlements based on the no admit, no deny language, because the SEC settles cases based on what it reasonably believes it would be able to recover at trial. He also said that other government agencies actually allow denials in settlement agreements but the SEC does not. In a comment clearly aimed at Judge Rakoff, Martens said that in over 2,000 SEC settlements, courts have only made 10 inquiries into the details of the settlement, and that only one judge has rejected the settlement.
  • SEC Commissioner Luis Aguilar spoke about his view that the SEC should require public corporations to disclose their political and lobbying expenditures. Commissioner Aguilar cited language used in the Supreme Court's decision in Citizens United v. FEC that the government "may regulate corporate political speech through disclaimer and disclosure requirements" and stressed that the mechanism envisioned by the Supreme Court "does not currently exist." Commissioner Aguilar called for a mandatory, uniform disclosure requirement and emphasized the importance of corporate political spending information to investors. 
  • SEC Commissioner Daniel Gallagher dedicated his speech to the issue of the SEC's "disturbingly murky" guidance as to the scope of "supervisory liability" under the Exchange Act and the Investment Advisers Act. Commissioner Gallagher noted that the Commission has the authority to sanction individuals for a "failure to supervise" a broker dealer or investment adviser who commits a securities violation. But, guidance as to who is subject to liability under this theory—particularly in the case of legal and compliance personnel—is a question that "has never been answered in the clear and definitive manner such a weighty issue deserves." The Commissioner emphasized the negative repercussions of this lack of clear guidance, including that legal and compliance personnel may be reluctant to take an active oversight role for fear of subjecting themselves to liability as a "supervisor." He suggested that compliance and legal personnel should "by default" be understood as "providers of support" rather than supervisors because "the Commission and [Self Regulatory Organizations] should want legal and compliance in the discussion about most issues."   
  • Howard Scheck, the SEC's Chief Accountant, described the SEC's new FCPA Unit and its recent wave of FCPA cases. He indicated that companies should not focus on recent statistics regarding the SEC's percentage of charges against companies versus individuals, and said that the SEC continues to be very focused on charges against both groups. He also said that the SEC would bring more FCPA cases against pharmaceutical companies in 2012, and that companies need to focus on FCPA controls as part of testing their internal financial controls.
  • Sanjay Wadhwa, Associate Regional Director of the New York regional Office and Deputy Chief of the SEC's Market Abuse Unit, discussed the SEC's recent wave of insider trading cases. He responded to industry commentary about the government's use of wiretaps and made it clear that the SEC is still pursuing traditional insider trading cases and believes that it can still effectively use traditional techniques to successfully prosecute such cases. He said that the expert network line of cases is larger than the Galleon cases and that the SEC has many more "promising" investigations in the pipeline.
  • Dan Hawke, Regional Director of the SEC's Philadelphia Office, discussed the SEC's new Municipal Securities and Public Pensions Unit, and indicated that the Unit would continue to focus on pay-to-play issues, pricing fraud, and disclosure violations in the coming year.