[This story previously appeared in Securities Regulation Daily.]
By John Filar Atwood
Fraudulent schemes commonly reach across borders, making international cooperation essential to the SEC’s enforcement program, according to Commission Chair Mary Jo White. In remarks to the IOSCO annual conference in Rio de Janiero, she said that the agency made more than 900 requests for international assistance in the last fiscal year and received valuable support from regulators in Germany, Australia, Guernsey, Liechtenstein and elsewhere.
In her speech, White said that the Commission is constantly working to improve its enforcement program. In fiscal 2013, the SEC brought more than 675 enforcement actions and obtained orders for $3.4 billion in penalties and disgorgement. She noted that the agency will be announcing soon the results for fiscal 2014, which just ended, and hinted that the SEC had another productive year.
Strengthening deterrence. One strategy the Commission employs, White said, is to bring innovative actions to increase its enforcement reach and to strengthen deterrence of wrongdoing. As examples, she cited recent actions charging violations of the market access rule, a case against an individual for misleading and obstructing a compliance officer of an investment adviser, and the first case applying the Dodd-Frank Act whistleblower anti-retaliation provisions.
As evidence of its efforts to continually improve, White discussed three enforcement program enhancements implemented since she took over as chair. They are the creation of new task forces to target particular types of misconduct, a change to the settlement protocol to require public admissions of wrongdoing in some cases, and the whistleblower program.
Task forces. In June 2013, the SEC established a Financial Reporting and Audit Task Force which focuses on ensuring accurate and reliable financial reporting. The task force uses innovative analytical tools to more quickly identify potential issues in financial statements and disclosures that merit further investigation, White said.
According to White, there has been a significant jump in the number of financial fraud and issuer disclosure cases that have been filed since the task force was formed. The group also has increased awareness among companies and auditors that the SEC is closely focusing on the quality of their financial reports and audits.
She noted that the Commission also established a Microcap Fraud Task Force to increase its efforts to eliminate fraud in the microcap industry. The “pump and dump” scheme is a perennial enforcement problem, she said, and the task force is increasingly obtaining trading suspensions to stop misconduct sooner, often before the dump of shares can occur, and limiting the ability of wrongdoers to profit from their schemes.
Admissions of wrongdoing. White said that the SEC modified the longstanding no admit-no deny settlement protocol to require public admissions of wrongdoing in cases the Commission believes require a greater measure of public accountability. The cases involve particularly egregious conduct, a large number of harmed investors, significant risk to the markets or to investors, conduct that obstructs or impedes the SEC’s investigation, ones in which the wrongdoer poses a future threat to investors or the markets, and cases in which admissions would enhance the deterrence message.
The change in protocol should strengthen the impact and message of the enforcement program, according to White. Greater public accountability results in increased investor confidence in the SEC’s enforcement program and in public markets, she noted, and serves as a warning to would–be violators.
Whistleblower program. The whistleblower program has been successful, White said, generating more than 3,000 tips in each of the last two years. She believes recent awards, including $30 million to a non-U.S. person, will encourage even more whistleblowers both within and outside the U.S. to report misconduct and help the enforcement staff to bring wrongdoers to justice.