Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Friday, February 6, 2009

Chair Schapiro on SEC Priorities

Excerpts from SEC Chairman Mary Schapiro's Address to Practising Law Institute's "SEC Speaks in 2009" Program, Feb. 6, 2009:

As a first, but significant, step in empowering our Enforcement staff, I am this week taking action to end the Commission's two-year "penalty pilot" experiment, which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties for public companies as punishment for securities fraud.

In speaking to our Enforcement staff, I've been told that these special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed.

At a time when the SEC needs to be deterring corporate wrongdoing, the "penalty pilot" sends the wrong message. The action I am taking to end the penalty pilot is designed to expedite the Commission's enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.

Another immediate change I am putting in place to bolster the SEC's enforcement program is to provide for more rapid approval of formal orders of investigation — the permission slips given out by the Commission that allow SEC staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a Commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the Commission or by "duty officer" — a single Commissioner acting promptly and on behalf of the entire Commission.

Today, however, many formal orders of investigation are made subject to full review at a meeting of all five Commissioners, necessitating that they be placed on the calendar sometimes weeks in advance. In investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly. To ensure that subpoena power is available to SEC staff when needed, I've given direction for the agency to return to the prior policy of timely approval of formal orders by seriatim approval or where appropriate, by a single Commissioner acting as duty officer.

*         *        *

The crisis facing our capital markets will require aggressive and timely action to restore investor trust and confidence. To this end, allow me to highlight a few of the initiatives that I hope to pursue as priorities:

Improving the quality of credit ratings by addressing the inherent conflicts of interest credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions.

Reducing systemic risk to investors and markets by promoting — and regulating appropriately — centralized clearinghouses for credit default swaps.

Strengthening risk-based oversight of broker-dealers and investment advisers.

Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.

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