Cox Pledges Greater International Enforcement Efforts; SEC Developed Enhanced MOU

Against the backdrop of impending financial market reform, which many policy makers say must be global, SEC Chairman Christopher Cox committed the Commission to greater international enforcement actions on top of recent efforts. The chair said that the SEC is pioneering a robust Memorandum of Understanding with non-US securities regulators that goes beyond what has heretofore be seen, with more enhancements than the IOSCO model multilateral MOU.

In remarks to the International Enforcement Institute in Washington, he noted that all through the unfolding global market crisis the SEC has been working closely with its international regulatory counterparts to coordinate actions and align strategies. Nowhere is this more important than in the area of enforcement. Investigations into the causes of this year's unprecedented market volatility, and the extent to which market manipulation might have contributed to it, have taken on exceptional importance as securities regulators work to restore investor confidence.

The scale of the SEC’s international enforcement cooperation has been massive, said the chair, adding that in the last year the SEC made 556 requests of foreign regulators for assistance with SEC investigations. Many of these investigations are linked to possible wrongdoing in the sub prime area. Presently, the SEC is working on 12 open sub prime investigations with foreign regulatory counterparts. Some of these are large scale and complex investigations that require cooperative access to each other's files. In some of these matters there is also an ongoing criminal investigation, both in the United States and abroad.

At the same time, non-US securities regulators are making requests of the SEC for assistance with their own investigations. In the past year, the SEC received 454 requests from foreign regulators for this kind of law enforcement help.

Turning to specifics, Mr. Cox said that, recently, the High Court of Justice in London ordered an asset freeze in the UK against a UK citizen who was a defendant in a pending SEC action in Boston. The SEC alleges significant ongoing fraud in a hedge fund operation. The UK Financial Services Authority provided the SEC with intelligence that was instrumental in obtaining a Freezing Order in the UK courts on the Commission’s own behalf. In another recent case, SEC enforcement staff worked with the Swiss Federal Banking Commission to develop intelligence about suspicious insider trading that helped the SEC win a temporary restraining order in a U.S. federal court. The SEC also used that information through the U.S. Department of Justice to ask the Swiss federal criminal authorities to freeze accounts in Switzerland. Already, millions of dollars have been frozen in that action, and the figure may still be rising.

More broadly, the SEC has entered into enforcement Memorandums of Understanding with many non-US authorities. The SEC is now advocating an enhanced enforcement MOU that goes well beyond what is reflected in existing agreements, or in the IOSCO Multilateral Memorandum of Understanding.

This new kind of agreement for more broad assistance would extend to the sharing of accounting information, including audit work papers. Securities regulators would agree to share telephone and Internet service provider records. The agreement would also cover the confidential exchange of credit card records, travel records, employment information, and corporate records.

Beyond that, regulators would assist one another in obtaining records of electronic and telephonic communication, as well as testimony, responses to questions, and statements from witnesses.
The SEC recently executed an enhanced enforcement MOU with the Australian Securities & Investments Commission (ASIC) that provides for precisely these types of assistance. The SEC and ASIC are also committed to seeking asset freezes on each other's behalf, and to assisting with the restitution of funds to injured investors. Chairman Cox wants this enhanced level of enforcement cooperation to serve as a model for other jurisdictions, possibly even setting a new international standard for enforcement cooperation.