SEC Must Be “Strong, Effective Cop On The Beat,” Chair Says

The Securities and Exchange Commission will be “aggressive and creative” in using enforcement actions going forward, including pursuing individuals, seeking higher penalties, and in some cases requiring companies to admit to wrongdoing, Chair Mary Jo White said in a Sept. 26 speech. Where individuals at fault can be identified, cases against them should be pursued, White said, adding, “When people fear for their own reputations, careers or pocketbooks, they tend to stay in line.”

Personal accountability will mark a shift for the agency. “I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in,” White said. “It is a subtle shift, but one that could bring more individuals into enforcement cases.”

White also supported possible legislation to allow the SEC to seek penalties either three times the ill-gotten gains or the amount of investor losses, whichever is greater. Under current law, the agency cannot assess a penalty based on investor losses, but is limited instead to the usually much lower figure based on the ill-gotten gains of a defendant, which “may obtain to amounts that both we and the public think are too low,” White said. Meaningful monetary penalties “make companies and the industry sit up and take notice,” she said. “Among other things, the proposed legislation also would authorize us to seek additional penalties if the wrongdoer is a recidivist – a repeat offender who has been undeterred by prior enforcement actions.”

Sen. Jack Reed (D-RI), who sits on the Senate Banking Committee, is said to be preparing legislation to introduce this fall.

Going forward, the SEC may in some cases waive the normal “no-admit-no-deny” settlement language, instead requiring the admission of guilt. Instances where the agency may find that necessary include: where a large number of investors have been harmed or the conduct was otherwise egregious; where the conduct posted a significant risk to the market or investors; where admissions would aid investors deciding whether to deal with a particular party in the future or; where reciting unambiguous facts would send an important message to the market about a particular case.

But whether or not to require admissions are “decisions … for us to make within our discretion, not decisions for a court to make,” White said.