Sunday, November 13, 2011
The SEC Commissioner Elisse B. Walter made an important speech on November 8, 2011 at the FINRA Institute at Wharton Certified Regulatory and Compliance Professional (CRCP) Program at the University of Pennsylvania, in which she explored the relationship between public and private enforcement of federal securities laws. After tracing first the development and then the contraction of the implied private right under Rule 10b-5, she stated:
Given these developments, what are the implications for the federal securities laws? I speak only for myself, but I believe strongly that the public, Congress, courts, and even the securities bar do not fully appreciate the interrelationship between public and private enforcement. The impact of changes in the parameters or existence of private actions on the enforceability of the federal securities laws is simply not well understood. And yet, it is critical to investors, our securities markets, and our economy overall that these laws remain fully enforceable.
The contraction of private rights means that their ability to supplement government enforcement is limited, and they become less sturdy support for the overall enforcement process. This means that Commission and other public enforcement of the federal securities laws must “take up the slack,” so to speak. Thus, the need for strong governmental and self-regulatory enforcement has never been greater.
In other words, I believe that the trend away from private rights of action under the securities laws has placed more and more pressure on the Commission and other regulators to be the sole guardians of the statutes. It is a vast understatement to say that the Commission has a big job to do. If private rights are cut back further, or further constrained, that puts an increasing burden on already scarce governmental resources.