Securities Law Prof Blog

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

Thursday, May 7, 2009

SEC's Enforcement Director Testifies Before Senate Banking Subcommittee

Robert Khuzami, the SEC's Director, Division of Enforcement made his first appearance before the U.S. Senate Banking, Housing, and Urban Affairs Subcommittee on Securities, Insurance, and Investment and presented Testimony Concerning Strengthening the SEC's Vital Enforcement Responsibilities.  He stated that:

In your letter inviting me to appear, you asked me to provide my views on: (1) the extent to which the resource shortages and enforcement policies of the SEC in recent years have hampered aggressive enforcement of securities laws; (2) what changes are needed to ensure that the SEC does not once again fall behind on its enforcement responsibilities; and (3) what changes Congress should consider to ensure adequate resources and authority for the SEC to fulfill its vital enforcement role.

In his testimony, Mr. Khuzami addressed the GAO's recent report Securities and Exchange Commission: Greater Attention Needed to Enhance Communication and Utilization of Resources in the Division of Enforcement (GAO-09-358) and stated that he fully concurred with the GAO's recommendations.  He stated that he would use additional resources in the following ways:

Administrative and paralegal support: The Division's lawyers and accountants spend too much time doing document or organizational tasks that are better handled by para-professional personnel. This includes document collection, organization, uploading and indexing, as well as tasks related to the collection and distribution of disgorgement and penalties. It would be much more efficient, and free-up much more time for high-value investigative tasks, if these efforts were transferred to administrative and support staff.

Information technology support: The SEC is working on a number of technology initiatives designed to bolster its ability to detect, investigate, and prosecute wrongdoing. These initiatives include a review of how the SEC handles tips, complaints, and referrals; the improvement and expansion of the Division's document management, reporting and case management capabilities; and the improvement of the SEC's ability to identify, track, and analyze data to identify risks to investors better.

Trial lawyers: It is important that the Commission maximize the capacity and ability of its trial unit. Simply stated, we must convey to all defendants in SEC actions that not only do we assemble winning cases against them, but also we are prepared to go to trial and we will win. Only then can we expect to secure the type of settlements that both achieve justice for investors and save resources to be used in pursuing the next case. Without that credible threat, we are at a severe disadvantage. Our trial unit does an admirable job, but given the increased caseload, particularly the great increase in the number of emergency actions such as temporary restraining orders and asset freezes, it needs to grow.

Hiring a Chief Operating Officer/Business Manager: the Division lacks a business manager or COO who can manage administrative, information technology, project management, and human resource issues. Additional staffing in the Office of Collections and Distributions would be welcome, as our attorney-investigators spend a significant amount of time doing collection and distribution work — approving distribution plans and distribution service providers — when they could be investigating cases.

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