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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Address to Practising Law Institute's "SEC Speaks in 2009" Program


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Ronald Reagan International Trade Center
Washington, D.C.
February 6, 2009

Thank you for that kind introduction, Linda [Thomsen]. It is great to be with you today and to see so many familiar faces.

I have been back at the Commission for less than two weeks, after a nearly 15-year hiatus. I am extremely proud to return to the agency that I know is so important to investors and our economy.

So much has changed in the 15 years since I left the SEC as a Commissioner to become Chairman of the CFTC and then to move on to NASD and FINRA. In many ways, the changes have been dramatic:

  • The SEC's budget in 1994 was $260 million, less than one-third of what it is today ($906 million).

  • The World Wide Web was still being developed; the SEC hadn't yet put up a Web site, and EDGAR had just become operational.

  • The Commission initiated 497 actions in my last full year as Commissioner, compared to 671 actions last year.

  • U.S. mutual fund assets, which totaled $2 trillion in 1994, have grown to nearly $10 trillion today.

While so much has changed in our markets and at the Commission over the past decade and a half, some things at the SEC have thankfully remained constant. Above all, the quality and caliber of the SEC's professional staff has remained at the same exceptionally high level. I return to the SEC knowing well that the agency is staffed by a group of dedicated professionals who care deeply about fulfilling our important mission.

On this note, I'd like to take a moment to recognize the many members of the SEC staff who are in attendance today, and thank each and every one of you for your tremendous contributions to public service and investor protection, during extraordinary times. If you're a part of the SEC staff, will you please stand so we can thank you for all that you do.

For 75 years, the SEC's mission has been to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation. This is a challenging mission even in good times, but it's made even more challenging in tough financial times like those we are enduring now.

We must take our cues from the current environment. Trillions of dollars of wealth have been lost. Our economy is in recession. And investor confidence has been badly shaken. Middle-class families who were relying on that nest egg to send a son or daughter to college or for a secure retirement now don't know where to turn.

It is precisely during times like these that we need the SEC as the "investor's advocate." An SEC with the staff, the will, and the resources necessary to move with great urgency to:

  • bring transparency and accountability to all corners of the marketplace,

  • vigorously prosecute those who have broken the law and cheated investors, and

  • modernize our country's regulatory system to match the realities of today's global, interdependent markets.

As the current market crisis has unfolded, the SEC, along with the entire regulatory structure, has been put under a microscope. This crisis has exposed weaknesses and gaps in the regulatory system and areas where the SEC particularly must re-commit its resources and talents in order to restore investor confidence. We must help to restore that lost confidence — that is our challenge.

Success in this endeavor demands that we as an organization engage in serious self-evaluation. That means taking an honest look at everything we are doing and how we do it. I know there is so much being done right, but there is also much that can be done better. I learned long ago that one of the SEC's greatest strengths has been its ability to adapt to change, while never forgetting that it is the American people we are here to serve.

The SEC is a proud institution with a remarkable history and a tradition of activism. In the days ahead, we will rise to the new challenges of today's financial and regulatory realities, both by embracing new approaches and by maintaining the great traditions that have defined this institution throughout its history.

The challenges we face are historic. But they're not insurmountable. It will take determination, hard work, toughness, and above all, an unrelenting will to stand up for investors.

But make no mistake. Regulation is a two-way street. The "regulated" need not wait for a regulator's reforms, though they will come. At a time when investors are appalled at the ways of Wall Street, it is there that change must begin. A strong and reinvigorated SEC will be on the beat like never before to catch wrongdoers. But there needs to be a new era of responsibility on Wall Street and throughout our markets to ensure that wrongs don't occur in the first place. The sooner that Wall Street works to repair its own problems, the sooner investors will once again find the confidence to invest in what should be the finest markets in the world.

There is much we can do to accelerate that process, including giving shareholders a greater say on who serves on corporate boards, and how company executives are paid.

There is much to be accomplished, but this morning I'm here to describe how we will approach the challenges we face, and the actions we've already taken.

At my confirmation hearing, I emphasized the need for the SEC to move with the sense of urgency that investors demand — to be willing and able to move quickly, precisely, and decisively to take actions that will restore investor trust and confidence in our financial markets.

Investors are looking to the SEC to protect them. To do that well, we have to act swiftly to respond to market events, and that means we must be willing to change the way we do business.

Those who break the law and take advantage of investors need to know that they will face an unrelenting law enforcement agency in the SEC — an agency that will pursue them until the full force of the law is the sure, certain, and sole reward for their wrongdoing. No one should be heard credibly to question whether enforcement is a priority at the SEC. It is, and always will remain, a foundation of our mission.

As the first SEC Chairman, Joseph Kennedy, told the nation 75 years ago in explaining the agency's role, "The Commission will make war without quarter on any who sell securities by fraud or misrepresentation."

As a first, but significant, step in empowering our Enforcement staff, I am this week taking action to end the Commission's two-year "penalty pilot" experiment, which had required the Enforcement staff to obtain a special set of approvals from the Commission in cases involving civil monetary penalties for public companies as punishment for securities fraud.

In speaking to our Enforcement staff, I've been told that these special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed.

At a time when the SEC needs to be deterring corporate wrongdoing, the "penalty pilot" sends the wrong message. The action I am taking to end the penalty pilot is designed to expedite the Commission's enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.

Another immediate change I am putting in place to bolster the SEC's enforcement program is to provide for more rapid approval of formal orders of investigation — the permission slips given out by the Commission that allow SEC staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a Commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the Commission or by "duty officer" — a single Commissioner acting promptly and on behalf of the entire Commission.

Today, however, many formal orders of investigation are made subject to full review at a meeting of all five Commissioners, necessitating that they be placed on the calendar sometimes weeks in advance. In investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly. To ensure that subpoena power is available to SEC staff when needed, I've given direction for the agency to return to the prior policy of timely approval of formal orders by seriatim approval or where appropriate, by a single Commissioner acting as duty officer.

In addition to these immediate actions, I have also spent much of my first week and a half on the job in meetings with my fellow Commissioners and the agency's senior staff to discuss other ways in which we can reinvigorate the SEC's enforcement program, including improving the handling of tips and whistleblower complaints and focusing on areas where investors are most at risk. And I anticipate that we'll be making further improvements in the coming weeks and months to ensure swift and vigorous enforcement.

In addition to our enforcement priorities, the Commission will of course also have a full plate when it comes to our policy and rulemaking agenda.

In deciding upon regulatory priorities, it is vital that the SEC re-engage with the people we serve: investors. The investor community — from the largest pension fund to the family who has saved in their 401(k) or 529 plan — needs to feel that they have someone on their side — that they can go to the SEC to seek redress, or to have their opinions heard.

To that end, we will form an Investor Advisory Committee to ensure that the Commission hears first hand about the issues most concerning to investors.

The crisis facing our capital markets will require aggressive and timely action to restore investor trust and confidence. To this end, allow me to highlight a few of the initiatives that I hope to pursue as priorities:

  • Improving the quality of credit ratings by addressing the inherent conflicts of interest credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions.

  • Reducing systemic risk to investors and markets by promoting — and regulating appropriately — centralized clearinghouses for credit default swaps.

  • Strengthening risk-based oversight of broker-dealers and investment advisers.

  • Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser.

Seventy-five years after the SEC was founded, the Commission finds itself in a situation where, once again, it must play a critical role in reviving our markets, bolstering investor confidence, and rejuvenating our economy.

The American people want and expect us to update the regulatory system that has failed them — and to prevent the kinds of abuses that have contributed to the economic crisis we now face.

Even as we pursue these regulatory priorities, the SEC will also be working closely with Congress to ensure that legislative restructuring of our financial regulatory system will preserve and strengthen our commitment to transparency, accountability, disclosure, and most of all, investor protection.

No other agency does what we do. Because of the unique role the SEC plays in our markets, I am confident the SEC will emerge from this process stronger and more relevant than ever before.

I am under no illusion that this will be an easy job. There is a lot of work to be done — quickly and diligently — in the months ahead. I look forward to this challenge, to helping the millions of investors who rely on strong markets and a strong economy, and to working with the professionals at the SEC.

Thank you for inviting me to join you today — and enjoy your next two days here at the conference.


Modified: 02/06/2009