Securities and Exchange Commission Chairwoman Mary Jo White recently warned advisors and broker-dealers that one of the agency’s top goals is to ensure that its enforcement program “is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small.”
Retail investors in particular, White stressed at the Securities Enforcement Forum in Washington in early October, “need to be protected from unscrupulous advisors and brokers, whatever their size and the size of the violation that victimizes the investor.”
The approach of going after “even the smallest infractions,” White said, is not unlike the one taken in the ‘90s by then New York City Mayor Rudy Giuliani and Police Commissioner Bill Bratton, back when White was the United States Attorney for the Southern District of New York.
“The same theory can be applied to our securities markets. Minor violations that are overlooked or ignored can feed bigger ones and, perhaps more importantly, can foster a culture where laws are increasingly treated as toothless guidelines,” White said.
As a former federal prosecutor, White’s focus on bolstering the agency’s enforcement division shouldn’t come as too much of a surprise. However, with the agency lacking adequate funds and exam staff, one has to wonder how the securities regulator can achieve such an ambitious goal of being “everywhere” and, as White also noted, “expanding” the agency’s reach. Help from a self-regulatory organization (SRO) possibly?
Former SEC Chairwoman Mary Schapiro, who’s now a managing director and chairman of Promontory Financial Group’s governance and markets practice in Washington, told me in an email message that the SEC “clearly needs additional resources and certainty of funding,” and an SRO “can leverage the agency’s capabilities and is an obvious option to respond to [the SEC’s] resource constraints.”
Steve Crimmins, a partner with K&L Gates in Washington, who served for eight years as the SEC’s Deputy Chief Litigation Counsel, told me recently that while it remains to be seen if the idea of naming FINRA as a self-regulatory organization to help the SEC examine advisors will regain political steam next year, “SROs have long been the SEC’s partner in identifying possible violations.”
(Read about one of the SEC’s other top goals, the fiduiary rule.)
White has herself conceded that the SEC’s resources “are not infinite. Indeed, they are not nearly sufficient to the enormity and scope of the responsibility we have.” But, she said in her early October comments, the agency is “making better and better use of our resources.”
The co-heads of the SEC’s enforcement division, George Canellos and Andrew Ceresney, White said in her comments, “are working to build upon the strength of the division by ensuring that we pursue all types of wrongdoing.”
Ceresney noted at the same event that part of the division’s strength are the five specialized units that were created by his predecessor, Robert Khuzami. The specialized units are “a wonderful innovation that has worked extremely well,” said Ceresney, who was appointed co-director along with Canellos by White in April.