Speech by SEC Chairman:
Introductory Remarks to the 30th Annual Southwest Regional Enforcement Conference
Chairman Christopher Cox
U.S. Securities and Exchange Commission
Fort Worth, Texas
September 14, 2006
Thank you, Rose [Romero], for that excellent tour of the enforcement waterfront in the Southwest Region, and for your kind words.
When I appointed Rose as District Administrator in February, it was a conscious choice to build on the sturdy relationship that the SEC and the U.S. Attorney's Office have established over many years. Rose is truly the embodiment of that close collaboration. Her 15 years as an Assistant U.S. Attorney and her many years of work with Richard Roper, our outstanding U.S. Attorney for the Northern District of Texas, have made our current working relationship stronger than ever. I have to say, I've always thought of Rose as Superwoman. She's been a police officer, she's served in the Air Force, she's been a diplomat in Ecuador and when she's not tracking down money launderers, she dabbles in photography, graduate studies, skiing, and scuba diving. Leonardo da Vinci would have felt inadequate in comparison.
Thanks to her leadership, and the hard work of Kit Addleman, our Associate District Administrator, and the Texas State Securities Board under the leadership of Commissioner Denny Crawford, this is shaping up to be the best Enforcement Conference ever.
I particularly want to thank the Texas State Securities Board for co-sponsoring this event with us. And of course, this is a very special Enforcement Conference our 30th Anniversary event. That's why I particularly wanted to be here to mark such an important milestone in our regional collaboration among so many key stakeholders.
I want to thank each of you for making the commitment to be here, because cooperation among all of our agencies federal and state, civil and criminal is what makes enforcement work.
We have a great lineup of panelists and presenters, and a very meaty issue agenda. Steve Korotash, our chief trial counsel here in Fort Worth, will kick off a session on lessons learned from the Enron criminal case that is bound to provide some very useful takeaway for everyone here working on white collar cases. And Sean Berkowitz, who as you know is head of the Enron Task Force at the Department of Justice, will walk us through that topic in more detail.
Steve Webster and John Polise are going to tackle PIPEs, microcaps, and various broker/dealer issues; and then the SEC's Marshall Gandy will moderate a very strong panel of private practitioners to discuss various kinds of emergency relief. That's an increasingly important topic as money, and the fraudsters that chase it, move faster than ever.
One of the most important reasons for a conference like this is to bridge the federal-state jurisdictional divide. And that's why it's so important that so many of our regional blue sky officials are here with us. Since we're in Texas, John Morgan is going to lead the discussion, and what a great panel we have with Rodney Gries representing Nebraska, John Root here for Arkansas, Pat Labarte from Oklahoma, and Pat Morgan from Missouri.
Tomorrow, of course, there's golf but before we get to that, there's a full morning devoted to examination issues and the hottest topics in regulation. Kim Garber is going to moderate a great panel that includes blue sky officials, the NASD, and the NYSE.
And in the grand finale, Kit Addleman is going to join with our AUSA's from Oklahoma and Texas to explore ways that we can all work to build on our already solid relationships for better and more effective civil and criminal coordination.
And then, there's golf.
It's certainly convenient that we're already here at the golf course. Unfortunately, you won't be able to play here.
These are suitable surroundings for Ben Hogan, but for us ... there's a great municipal course down the road. And let's face it we're lucky to be here for the indoors part of our conference. As you may know, our previous location was been taken from us ... by a revival meeting. Apparently, the law enforcement crowd is too noisy, so they wanted a quieter group ... like a revival meeting. With its own rock band. No kidding.
For those of you who are thinking, "hey I'm quiet and retiring" don't kid yourself. There is, after all, a certain enforcement personality type. Just doing your job requires you to be combative, creative, competitive and compassionate, to be sure. This sort of work requires men and women who are hard charging, diligent, relentless, and inexhaustible. You know that sometimes you have to get in fights; and when you do, you work hard to win them. Not infrequently, that means making a little noise.
So even though we all work for different parts of our federal and state law enforcement system, that's what we all have in common. In fact, since we're in Texas, I suppose you could all be wearing a star. You're all sheriffs here.
I've often pointed with pride to the fact that the SEC is, first and foremost, a law enforcement agency. There's a good reason for that. Despite the Commission's significant growth over the last 72 years, and our formidable size today we now have nearly as many employees as the Department of Education we'll never be able to individually police every securities firm, every market, and every registrant. So we rely upon clear rules and tough enforcement to do the job.
The SEC's mission is to protect investors, to ensure fair and orderly markets, and to promote capital formation. These are highly complementary objectives. A high level of investor protection makes individuals and firms more likely to entrust their money to the U.S. capital markets. Fair and orderly markets, in turn, have lower transaction costs, which promotes capital formation. And healthy capital formation is an important ingredient of economic growth and job creation. To put it another way, as Alan Greenspan once told me: the best investor protection is a rising market.
So we should all take pride in knowing that tough, predictable enforcement is not only an essential aspect of investor protection, but also an important contributor to our nation's economic health. And by collaborating in our daily efforts and taking advantage of opportunities such as this conference we can make our mutual efforts even more effective, and give America's investors even more protection for their hard earned money.
When we cooperate, we can wash out the redundancies and the regulatory inconsistencies. We can harmonize our approaches, and ensure that securities enforcement really is a building block of America's economic growth.
Knowing that you're doing everything you can to protect America's savings and investment has to make you feel good about the job you do. And for that reason, you can be very proud of your service to our nation. I'm certainly proud to be your partner.
The coming years are going to be a time of continuing aggressive enforcement because the health and prosperity of our markets depends on it.
We will constantly adjust and refine our priorities and our focus to meet changing market conditions, just as the SEC has always done since our birth in 1934. But the overall theme is exactly the same: the sheriff is in town.
And, thank God, we're not Gary Cooper in High Noon we have outstanding partners in the many state securities regulators who are with us here today. There are representatives here not just from Texas but also Oklahoma, Arkansas, Kansas, Louisiana, Nebraska and Puerto Rico. Welcome all. The understanding is, we catch your back, and you catch ours. We've got to share intelligence and exploit our respective strengths in order to achieve the maximum level of investor protection.
The best example of how well this works is the many cases where we have cooperated. One that comes readily to mind is Waddell & Reed's market timing case earlier in July. That case was coordinated with the New York Attorney General's office and the Kansas Securities Commission. Many thanks in particular to Rick Fleming and Gayle Bright respectively, General Counsel and Associate General Counsel for the Kansas Securities Commission for their patience and assistance in reaching a $50 million settlement for investors. Rick is with us today.
And you all may have heard of our most recent demarche in the area of cooperation: the Senior Summit we held in Washington on July 17. That brought together representatives and leaders from NASAA, the NASD, NYSE Regulation, the AARP and the California Department of Corporations. We all came together for an important purpose: to protect our nation's seniors from swindlers who would steal what's taken a lifetime to save, and what older Americans can now never replace.
I'm pleased to announce today that, given the importance of this mission, we're making the Senior Summit an annual affair.
Unless we do something about it now, this problem will only get much worse. A confluence of events and trends points to trouble ahead.
One of these trends is demographic. The 75 million baby boomers start turning 60 this year. Over the next two decades, they'll do so at the rate of 10,000 every 24 hours.
Another trend is actuarial. We're not just turning older in droves, but we're sticking around much longer. This has happened at a very rapid pace. When my father was born life expectancy was 49. A baby lucky enough to be born in these United States today can expect to celebrate his 80th birthday. And half of the babies born today will live past 100.
With households led by people 40 and over already owning 91% of individual and family net worth in America, you can see where this trend is taking us. The bulk of America's wealth will be in the hands of older Americans in many cases, very much older Americans. Add to this the significant shift from defined-benefit pension plans to defined-contribution plans that is well underway, and the need for investor protection focused on older Americans is abundantly clear. Scammers will flock to this group because, as Willie Sutton said, that's where the money is.
Already, the SEC staff receives tens of thousands of calls every year from older Americans who have already fallen prey to the unscrupulous, or have been sold investments they don't understand. So we're teaming up with all of our agencies and all of our resources to conduct a series of on-site compliance examinations of firms sponsoring so-called "free-lunch" seminars targeted at seniors.
In this area, I particularly want to thank Denny for her leadership. The SEC is working with her and her staff on an examination sweep right here in Texas.
In another facet of our initiative, we're working to educate seniors about the pitfalls of investing, and how not to fall victim to opportunistic scammers and unsuitable sales pitches. We're pleased to partner with the North American Securities Administrators Association in this educational push as well.
As a result of the steps we've already taken, there is more awareness among seniors now. Many people saw our "Seniors Summit" on C-SPAN, and many who didn't tune in heard about it from others. Many seniors are also asking for and receiving copies of our "Senior Care Package" that contains critical educational materials and advice.
In this area of investor education I want to thank the Arkansas Securities Division and especially its Investment Education Coordinator Zoe Rossi for coordinating presentations so we can all get our message out to the Arkansas senior community.
Our efforts with seniors do not stop with education, though that is obviously a big part. We also have a very significant and effective enforcement effort aimed at abuse of senior citizens, and we're now hitting on all cylinders.
Let me give you an example. Just last month, acting on a complaint from an investor who contacted our Office of Investor Education and Assistance, we conducted an onsite "cause" examination, and then filed an emergency enforcement action alleging that One Wall Street, Inc. and several individuals raised $1.6 million from 64 mostly senior investors, by making fraudulent claims and misleading statements.
We are working together on other aspects of this initiative, and there will be more to come in the months ahead. This is something all of us are doing together, and our efforts are bearing fruit.
Just a quick word about backdating, because this is such a significant current focus of our cooperative efforts.
By the time we brought our first major case, in late July against Brocade Communications Systems, we had been on the job for some time. Brocade was the first public step, but the SEC's investigation has been underway for years.
And its geographic footprint is broad. We have many cases here in this region. It covers many industries. As some of the investigations conclude, the American public will get a fuller sense of the picture.
But just as important is making sure that everyone understands our rules, so that the line between observance and transgression is a bright one that everyone can see.
So just a few weeks ago, on July 26, when we adopted new rules on executive compensation, we issued guidance to management and directors on what exactly is expected of them.
And we will soon issue further accounting guidance that will help honest companies to avoid any problems with the law.
At the end of the day, all of us would prefer living in a world where the rules are so clear, everyone can follow them, and does. And while we know that perfection isn't possible, we like to work for it nonetheless. So our goal is to have clear rules, clearly enforced. Our enforcement needs to be predictable, so that every honest person can conform his or her conduct to a legal standard that is known in advance. In enforcement, there is no upside to hiding the ball.
You play a central role in keeping our markets fair, efficient and liquid. You are the good guys upon whom our civil society depends.
When the citizens of our communities buy or sell in the marketplace, they have every right to expect honest dealings. To be sure, with trillions of dollars, marks, pounds, euros, francs, and yen changing hands every day in our fast-moving capital markets, it's no surprise that outlaws and gunslingers are lurking on the outskirts of town.
But if trading securities in today's complex markets won't ever be risk free, neither should it be a rerun of Bonnie and Clyde. Just like the Texas Rangers of old, each of us has a sworn duty to keep the financial markets safe from today's hi-tech rustlers and thieves. It's our job to help the unsuspecting, the honest, and the innocent to be secure in the often rough and tumble world of finance. And every once in a while, we're forced to have a figurative shootout with a financial villain who threatens to destroy the very confidence on which markets and ultimately our communities depend.
It's a beautiful autumn day here in Ft. Worth, and the weekend's just a few days away. And as kids and adults head outdoors to enjoy the balmy weather this time of year, they won't really think about the fact that your work behind the scenes helps make their peace of mind possible.
But you know that's true, and you can rightfully take great pride in it.
And whenever you see thieves lurking in the shadows, remember this is the 21st century. Do what any red-blooded American sheriff from the frontier days would do if he were alive today. Reach in your holster, draw your Blackberry, and fire a tip to your friends from other agencies all around this room.
Thank you for inviting me to speak to you here today. And thank you for everything you do to uphold the integrity of our markets, and to make our economy and our country better. All of us at the SEC are proud to be your partners.