Mary Jo White’s first year as chair of the U.S. Securities and Exchange Commission (the “SEC”) has concluded, and, in recent congressional testimony and speeches, she has attempted to paint a picture of a more engaged and effective agency by highlighting enforcement activities pursued under her watch.
President Barack Obama nominated White on February 7, 2013, the U.S. Senate confirmed her on April 8, 2013 and she was sworn in on April 10, 2013. Chair White’s appointment came during a time of significant upheaval in the global economy, with the U.S. struggling to pull itself out of the financial crisis of 2007-2008 that left individuals, investors and the marketplace in a state of widespread disarray. Fraudulent activities revealed during the crisis and its aftermath incited ire and caused many to criticize the SEC for lax oversight and subpar performance.
Many anticipated that Chair White would attempt to strike a new tone at the SEC, particularly given her prosecutorial background. Earlier in her career, from 1993 until 2002, Chair White served as the U.S. attorney for the Southern District of New York, focusing in part on prosecuting complex securities and financial institution frauds.
With her first year having come to a close, White is seeking to emphasize that the SEC is a changed, more aggressive agency vigorously focused on accomplishing its mandate. During testimony on April 29, 2014 before the Committee on Financial Services, United States House of Representatives, Chair White provided an overview of SEC enforcement activity that had occurred since her last appearance in May 2013.
Emphasizing the need for public accountability, she indicated that the SEC has “aggressively enforced the securities laws” under her leadership. She mentioned the SEC’s policy shift that requires admissions of wrongdoing in certain settlements, breaking from the SEC’s past position that allowed defendants to enter into settlements without admitting or denying that they engaged in misconduct. Additionally, White discussed historic recoveries achieved while she has been at the helm, indicating that the SEC filed 686 enforcement actions in the fiscal year ending in September 2013 and obtained $3.4 billion in penalties and disgorgement. The sums received are higher than the immediately preceding years, amounting to 10% more than fiscal year 2012 and 22% more when compared to fiscal year 2011, the year in which the SEC brought the most cases.
In addition, White noted in her congressional testimony the following enforcement priorities and activities that have been focal points for the SEC:
Market Structure: The SEC has brought enforcement actions against stock exchanges, broker-dealers and other market participants.
Insider Trading: The SEC has allocated significant resources to illegal insider trading activities and has exposed corporate board members, insiders and other professionals for using material nonpublic information to tip others or trade.
Financial Statement and Accounting Fraud: The SEC continues to uncover financial statement wrongdoing. Recently, for example, the SEC brought charges against executives for falsifying financial statements and reporting fictitious revenue. To bolster this area of enforcement, the staff has formed the Financial Reporting and Audit Task Force, which will utilize technology to review restatements and revisions and analyze corporate performance in light of industry trends.
Investment Advisors: The SEC filed 140 actions against investment advisers who perpetrate frauds, falsify investment returns or breach their fiduciary duties. Additional actions also centered around the lack of effective compliance programs and identification of abnormal performance returns by hedge funds.
Foreign Corrupt Practices Act: Over the past two-and-a-half years, the SEC has obtained over $679 million in monetary penalties from companies that have illegally bribed foreign officials in exchange for business opportunities. In addition to pursuing corporate wrongdoing, the SEC is also bringing actions against individual executives who participate in these activities.
Municipal Securities: The SEC has brought several cases involving municipal securities and public pensions. For example, the SEC has brought charges pertaining to materially misleading statements in the secondary market, misleading investors about funding for pension obligations and misrepresenting financial health.
Office of the Whistleblower: The SEC has received considerable high-quality information from the whistleblower program established in accordance with the Dodd-Frank Act. The Office of the Whistleblower Annual Report for 2013 provides that the SEC received 3,238 tips from whistleblowers in the U.S. and 55 other countries. The SEC recently paid more than $14 million to a whistleblower, the largest amount ever awarded, because the information was used in furtherance of a significant monetary recovery.
Chair White has also recently discussed the use of “all encompassing” enforcement to combat securities law violations. In her keynote address at the SIFMA Compliance & Legal Society Annual Seminar, White emphasized that her experience in her current position coupled with her prosecutorial background caused her to recognize that “the SEC’s expertise and extensive cooperation and partnership with the criminal authorities is essential to all-encompassing enforcement of the federal securities laws.” White stated, “[t]here are . . . no more powerful tools than a criminal conviction and the prospect – and reality – of imprisonment. . . . [M]y message today is that a robust combination of criminal and regulatory enforcement of the securities laws is not only appropriate, but also critical to deterring securities violators, punishing misconduct, and protecting investors.” The number of criminal prosecutions of securities cases is on the rise, and, in some cases, the SEC will collaborate closely with state and local law enforcement agencies as well and the U.S. Department of Justice and the Federal Bureau of Investigation.
Chair White is still at the beginning of her service at the SEC, as commissioners are appointed for five year terms. Given her activities thus far, individuals and entities subject to regulation by the SEC should expect tougher and more zealous enforcement by the agency while she is in command.