The SEC Speeds Up Its Enforcement Arm

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A spokesman for the SEC said enforcement staff have been asked "to review inventory to see if there were matters that should be closed," taking into account the "clarity of the evidence" and how advanced the cases are, with the goal of bringing "the best cases and ones that are programmatically significant." Attorneys were also told that cases dormant because of a lack of resources could be reassigned, the spokesman said.

Back to Specializing

In addition, Khuzami plans to establish specialized teams of attorneys to focus on key areas, including asset management (think hedge funds, mutual funds, and private equity), market abuse, "structured and new products" (aka derivatives and securitization), and foreign bribery cases. The move is a departure from recent practice, when nearly all SEC enforcement attorneys acted as generalists, aside from a few specialists in municipal securities or in the Foreign Corrupt Practices Act. (In the 1990s similar specialized groups existed that focused on investment management, broker-dealers, and other areas.)

Securities defense attorneys cautiously praise that move, saying it could help enforcement attorneys coordinate better with other divisions in the agency and may save companies time and money by ensuring attorneys are better versed in the practices they investigate. "There's nothing more frustrating than to get into the testimony room, and the staff doesn't understand what you do," one defense attorney says.

Another initiative Khuzami championed this week drives home the prosecutorial flavor of the agency's efforts: He called for increasing "incentives to individuals to cooperate in SEC investigations," which private-practice attorneys and former SEC officials say sounds like an effort by the SEC (which has only civil litigation powers) to emulate the plea bargains that criminal prosecutors can offer cooperative witnesses. The SEC, however, has fewer incentives to offer cooperating witnesses, short of waiving litigation and entering into deferred prosecution agreements, in which the agency puts litigation on hold and lets it lapse if a company or individual stays clean for a certain period.

"People who are in a position to cooperate usually do it because they've done something wrong—should they get a pass such that they're allowed to continue in the industry?" says one former enforcement attorney. "That's how federal prosecutors make cases, by getting cooperators, and the SEC has never really been able to do that because they don't have enough of a threat."

Just Clearing the Decks?

Darren Check, a plaintiffs' attorney at Barroway Topaz who represents mostly institutional investors, praised the agency's tack, calling it a sign that SEC Chairwoman Mary Schapiro is listening to investors' concerns. The past week's case roster "shows the investor community they are out there," Check says. Schapiro "has given investors on the institutional side a great deal of optimism."

Ultimately, of course, it remains to be seen how much of the new push—beyond clearing the decks of old cases—will yield real results. Already, this week's round of proposed settlements has hit its first stumbling block, with a federal judge insisting on greater detail before signing off on the BofA deal. The judge said he was concerned that the agreement didn't provide a clear basis for Bank of America's $33 million payment or indicate whether any of it would come from federal bailout dollars.

That kind of scrutiny, plus sheer institutional inertia, could wind up blunting some of the changes underway. Says Treazure Johnson, a securities and white-collar attorney at Venable: "There's a lot going on internally, but I don't see it turning into a whole lot externally."

Francis is a correspondent in BusinessWeek's Washington bureau. Byrnes is a senior writer for BusinessWeek.

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