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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks at the Closing of the International Institute for Securities Enforcement and Market Oversight


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Washington, D.C.
November 18, 2011

Thank you, Ethiopis, for that kind introduction.

Good afternoon. I would like thank you for your participation in the Securities and Exchange Commission’s 2011 International Institute for Securities Enforcement and Market Oversight. It is a real pleasure to join you here today at the successful conclusion of a week-long program. This, the seventeenth annual meeting of the Institute, has brought together over 175 regulators representing about 60 countries and jurisdictions from around the globe for intensive training and discussion on the most significant issues of securities enforcement.

In closing this Institute, I would like to raise some questions and offer some observations.

Before I do that, though, I need to remind you that my remarks represent my own views, and not necessarily those of the Commission, my fellow Commissioners, or members of the staff.1

Why does the SEC conduct programs such as this? Put another way, why is it important that we partake in opportunities to gather and confer with our regulatory and law enforcement colleagues from around the world? As we are constantly being reminded, capital markets are now so globalized and highly interconnected that a weakness within one market or within its regulatory oversight can serve to undermine other markets, like a weak link in a chain.

Indeed, just to give you a sense of this interconnectedness, we now find that nearly 30 percent of the SEC’s enforcement cases have an international element that requires the agency to seek assistance from foreign authorities. As a consequence, last year we made over 700 such requests related to our enforcement investigations. Our partnerships with regulators throughout the world are critically important to rooting out fraud and misconduct in our markets. We have programs like the one held this past week not only because we recognize that you are our partners, but also because we understand that we increasingly need each other.

But the rationale for programs such as these does not stop there. Over the years, all of us — as jurisdictions — have had our share of failures and successes. I believe that, through those experiences, we all have come to reach a better understanding of how critical it is — especially in a fast moving global marketplace — to share our regulatory experiences — our missteps and our best practices — and to learn from one another.

The SEC has weathered many storms, throughout its history and in recent years. And, if there is any certainty, it is that there will be more storms to come. As we confront these challenges, the agency’s work must continue to evolve and to keep pace with developments in the markets that we regulate. We must seek to keep up with financial and technological innovation. And, we must respond to the financial crises in our markets. While they say that crisis is the “mother of invention,” we also view this Institute as a wonderful opportunity to learn from others outside of “crisis mode”; this is a forum where we can learn best practices from around the world that we can incorporate, as appropriate, into our respective enforcement programs. This sharing of best practices results in a race to regulatory quality as opposed to the proverbial race to the bottom. It is my hope, and belief, that such a race to the top will create real benefits for investors in the markets under our jurisdictions.

What is at stake if our collaboration founders or fails to bear fruit? I don’t want to speak in hyperbolic terms, but we are talking about the financial wellbeing of people around the globe. A few weeks ago we reached 7 billion people on this planet. If the needs of the many investors in that population are to be met, it is crucial that securities regulators play their part effectively. We must succeed in creating an effective, and cost-effective, regulatory environment that can frame and support healthy capital markets, which in turn can play their central role in supporting economic investments that create jobs and promote innovative technologies, education, medical facilities, and clean energy to power the productive capacity that will meet the needs of so many people. Capital markets are one of the most efficient engines for economic growth in existence. If we get them right — and if we ensure that the capital markets are well-policed — they will certainly help provide the foundation for the economic well being of future generations. This is our work, and this is what is at stake.

Why is a vigorous enforcement program at the heart of this effort? Commentators have suggested that a vigorous enforcement program is one of the primary factors in lowering the cost of capital. In turn, of course, a lower cost of capital can result in more real investment and greater economic growth. Thus, this commentary reminds us of the pressing need to ensure that securities authorities have the right tools in their toolkit.

To illustrate, let me ask the most fundamental question: What are the conditions under which individuals are willing to take their hard earned money and entrust it to the capital markets? In my view, to commit their funds, investors must be confident in the integrity of the market. That, in turn, means that they need to know that the market is well-regulated.
As I have said before in another context, investor confidence is crucial to the health and integrity of our capital markets, and I believe that rebuilding and maintaining justifiable investor confidence should be a primary objective of our regulatory efforts.2

When investors invest their hard-earned funds in a business, they are taking on the inherent risk associated with that investment. That is the consequence of any investment. But, investors do not want to take on excessive risk or risks that they do not bargain for–especially when those risks relate to fraud.

Put simply, when stock issuing companies cook their books, when insiders trade with unfair informational advantages, when market manipulators artificially affect prices, and when broker-dealers abuse customers, the capital markets are distorted, and honest market participants suffer in myriad ways. When investors lack confidence, they will be loathe to invest and the economy will indeed suffer the consequences.

Unfortunately, there has always been, and always will be, fraud in financial markets. Of course, in the view of this Commissioner, there is no “acceptable” level of fraud in our marketplace. Even the most carefully crafted rules and regulations, keenly-calibrated risk-based supervision, and vigorous enforcement cannot completely prevent financial fraud and market abuse. The point is to do everything that we can to combat fraud, to do everything that we can to ensure that investors can be justifiably confident in our markets, and to restore that confidence when it falters. Vigorous enforcement is critical, especially in times when investor confidence is badly shaken.

To police a securities market, securities regulators need a wide range of skills and investigative and prosecutorial tools. I know there has been much discussion about these tools during this Institute. But, to cite just a few, securities authorities must have access to bank records to follow the money trail. They must have phone records, which are essential to many insider trading investigations. Emails and hard drives have cracked open many cases. And the ability to obtain asset freezes has enabled us to shut down frauds in their tracks.

As you are aware, the SEC is first and foremost an enforcement agency. Enforcement is often our most public face. Every year the SEC initiates hundreds of enforcement cases to remedy violations of the U.S. federal securities laws. In fiscal 2010 alone, the SEC brought 681 enforcement actions against 1871 defendants for insider trading, fraudulent financial reporting, market manipulation, offering frauds such as pyramid schemes, and violations by broker dealers and investment advisors. In addition, self-regulatory organizations, like FINRA, brought many hundreds more cases, and the SEC has assisted law enforcement agencies in the United States and around the world with criminal cases. At least in part as a result of these efforts, the cost of capital in the U.S. tends to be one of the lowest in the world. Indeed, I believe that this securities enforcement effort constitutes a national treasure, although it is perhaps seldom explicitly recognized in that way.

The good news is that this is not what economists would call a zero-sum game — where one jurisdiction’s gain comes at another’s loss. Indeed, the returns from enhanced enforcement efforts not only can be shared across jurisdictions, but, given today’s globalized market place, require a coordinated effort to produce.

For the past seventeen years, this Institute has been one of the SEC’s flagship programs for promoting the quality of securities enforcement programs around the globe, and strengthening and deepening international cooperation among securities regulators. It is now, when the world’s financial and securities markets are facing historic challenges, that we can truly appreciate the vital importance of programs such as this. We must all take to heart the lessons we have learned from one another over the past week and redouble our efforts to protect our investors and effectively regulate our markets through enforcement.

Finally, I especially want to extend my appreciation to you for coming from so far to share this time with us. We cherish the professional and personal relationships that these Institutes engender. The work that you do is important not just for your markets, but also to the global community. We look forward to continuing our work with you in the future, and I wish you a safe and pleasant journey home.

Thank you.

1 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publications or statements by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission, other Commissioners, or the staff.

2 See Elisse B. Walter, Commissioner, U.S. Securities and Exchange Commission, Opening Remarks Regarding Short Sale Price Restrictions, Washington, D.C. (Feb. 24, 2010), available at http://www.sec.gov/news/speech/2010/spch022410ebw-shortsales.htm



Modified: 11/22/2011