Speech by SEC Chairman:
The Importance of International Enforcement Cooperation in Today's Markets
Chairman Christopher Cox
U.S. Securities and Exchange Commission
SEC International Enforcement Institute
November 7, 2008
Thank you, Ethiopis [Tafara, Director of the SEC Office of International Affairs] — and good afternoon to all of you who have helped make this one of the most successful International Enforcement Institutes ever. It is a pleasure to join you at the pinnacle of what has been a truly exceptional and productive week. This International Enforcement Institute, as you know, is one of the high points for us at the Commission each fall.
All of the people you have heard from, including the SEC's senior enforcement and inspections staff, experts from our exchanges, and officials from self-regulatory organizations, have helped you focus on practical issues such as conducting investigations, and devising strategies for market surveillance and the inspection of broker-dealers. In the process, we have all learned from each other. It's enormously impressive that securities regulators from over 65 countries are participating in this year's Institute, and it bodes well for our future cooperation in the difficult days ahead.
You also have had the opportunity to visit Washington during a very eventful week in our nation's politics. You witnessed an historic election, and I'm very glad that you were able to share this experience with us. Two hundred years of peaceful political transitions have made the process of handing over the reins of power seem second nature, but as this year's dramatic events have shown, there is always a newness and vitality that emerges from the democratic process that inspires us all.
Just as the light of American democracy shines brightest during our elections, the essential mission of America's financial regulatory system takes on its greatest importance when economic events threaten confidence in markets. The SEC's role in this system is to protect investors, to maintain fair, orderly and efficient markets, and to facilitate capital formation. The events of recent months have demonstrated more clearly than ever that maintaining market confidence is a global responsibility, and that securities regulators around the world have got to work together in order to achieve that objective.
As the credit crisis has unfolded throughout the world during 2008, the SEC has been working closely with our international regulatory counterparts, including many of you in this room, to coordinate our actions and align our strategies. Nowhere was this more important than in the area of enforcement. Investigations into the causes of this year's unprecedented market volatility, and the extent to which market manipulation might have contributed to it, have taken on exceptional importance as we work to restore investor confidence.
The scale of our international enforcement cooperation has been massive. Over the last year, the SEC made 556 requests of foreign regulators for assistance with SEC investigations. That's more than one a day on average. Many of these investigations are linked to possible wrongdoing in the subprime area.
At this moment, the SEC is working on 12 open subprime investigations with our foreign regulatory counterparts. Some of these are large scale and complex investigations that require cooperative access to each other's files. In some of these matters there is also an ongoing criminal investigation, both here in the United States and abroad.
At the same time, many of you are making requests of the SEC for assistance with your own investigations. In the past year the SEC received 454 requests from foreign regulators for this kind of law enforcement help. And we have been eager to provide it.
All of these cooperative international efforts have led to tangible and impressive results. Let me give you just a few examples.
Recently, the High Court of Justice in London ordered an asset freeze in the UK against a UK citizen who was a defendant in a pending SEC action in Boston. Our action alleges significant ongoing fraud in a hedge fund operation. The UK Financial Services Authority provided us with intelligence that was instrumental in the SEC's obtaining a Freezing Order in the UK courts on our own behalf. We greatly appreciate the cooperation we've received from the UK FSA in this and other recent matters.
In another recent case, our Enforcement staff worked with the Swiss Federal Banking Commission to develop intelligence about suspicious insider trading that helped the SEC win a temporary restraining order in U.S. District Court. We also used that information through the U.S. Department of Justice to ask the Swiss federal criminal authorities to freeze accounts in Switzerland. Already, millions of dollars have been frozen in that action, and the figure may still be rising.
In yet another cross-border case that is still underway, the SEC is tracking down a securities fraud scheme masterminded by a Spanish national living in Barcelona, who operated through a number of offshore companies based in such far-flung jurisdictions as Panama, Dominica, Belize, and the British Virgin Islands. Once we determined that the money from the fraud had been wired to Andorra, we were able to obtain an asset freeze with the help of the Andorran authorities. And both the United States and Andorra are now pursuing criminal actions as well.
In recent years, the SEC has entered into enforcement MOUs with many of the authorities represented here today. More recently we have placed emphasis on an enhanced enforcement MOU that goes well beyond what is reflected in these existing agreements, or in the IOSCO Multilateral Memorandum of Understanding.
This new kind of agreement for more broad assistance would extend to the sharing of accounting information, including audit work papers. Securities regulators would agree to share telephone and Internet service provider records. The agreement would also cover the confidential exchange of credit card records, travel records, employment information, and corporate records. Beyond that, regulators would assist one another in obtaining records of electronic and telephonic communication, as well as testimony, responses to questions, and statements from witnesses.
We have recently executed an enhanced enforcement MOU between the SEC and the Australian Securities & Investments Commission (ASIC) that provides for precisely these types of assistance. The SEC and ASIC are also committed to seeking asset freezes on each other's behalf, and to assisting with the restitution of funds to injured investors. We hope that this enhanced level of enforcement cooperation will serve as a model for other jurisdictions, and possibly set a new international standard for enforcement cooperation.
I know that everyone in this room appreciates the fact that in our global economy, regulators responsible for maintaining healthy securities markets have to make enforcement a top priority, and have to reach across borders to do that job well. In the United States, we fully appreciate that the long arm of the law has to reach not only from Boston to San Francisco, but also to Bangalore and Santa Domingo. That's because enforcement is not simply a cost of maintaining the rule of law, but rather a precondition for deep and liquid securities markets, in our own country and in other jurisdictions as well. There is a demonstrated correlation between the level of securities law enforcement and the health of capital markets as determined by objective measures.
For example, research published two months ago by Howell Jackson and Mark Roe of the Harvard Law School highlighted the importance of public enforcement to strong financial markets. They found that robust public enforcement is regularly associated with deeper securities markets around the world, and in fact that it plays just as important a role in maintaining healthy markets as does the entire system of public disclosure.
They also found that strengthening public enforcement could well play a role in developing the quality of emerging markets.
It is because we understand the direct connection between strong markets and securities law enforcement that the SEC has consistently made enforcement our top priority. Today, more than one third of the entire agency works in our enforcement program. We currently devote a higher percentage of the SEC's total staff to enforcement than at any time in the past 20 years. What I find particularly impressive about the professional men and women in our Enforcement Division is that in these particularly difficult times, they have truly shown their perseverance and dedication. We constantly measure the rate of staff turnover as a measure of morale and the health of our program — and I am happy to report that enforcement turnover has declined dramatically, from 14% in 2000 to less than 5% in 2008.
In this past year, we have also increased the number of enforcement personnel by 4%.
And our results show it. In our fiscal year just ended, the SEC brought the second-highest number of enforcement actions in agency history. And for the second year in a row, we also returned more than $1 billion to harmed investors as a result of these actions.
The SEC brought a record number of enforcement actions against market manipulation in 2008, including a precedent-setting case against a Wall Street short seller for spreading false rumors.
Not just in 2008, but in each of the last two years, we have set the record for the highest number of corporate penalty cases in the agency's history. And we recently announced settlements in principle that will return over $50 billion to investors in auction rate securities — by far the largest settlements in SEC history.
Many of these cases simply could not have been brought without your help. We're proud to point out that in 2008, the SEC brought the highest number ever of insider trading cases in our agency's history. But we might also add that we often leaned on many of you for overseas help. As just one well-known example, our high-profile insider trading action against former Dow Jones Board Member David Li and three others in Hong Kong required close and very real-time cooperation with the Hong Kong Securities and Futures Commission.
The same is true with our record-setting number of cases under the Foreign Corrupt Practices Act against public companies that use corporate funds to bribe foreign officials. Since January 2006, the SEC has brought 38 of these foreign bribery cases — more than were brought in all prior years combined. The international cooperation that's embodied in your personal participation here today is the reason these successes are possible.
The securities regulator's role in policing the markets and protecting investors has never been more critical. I know that in your countries, just as in the United States, the dedicated men and women of your enforcement staffs are working around the clock to investigate and punish wrongdoing. I want to take this opportunity to thank you for what you do each and every day to protect investors and our markets — and for making the extraordinary commitment of time and travel to participate in this important event. Working together, cooperatively, in these turbulent times, I'm confident that all of us will be better able to fulfill our missions of investor protection and restoring market confidence.
So thank you, and congratulations on what you've accomplished here this week. We at the SEC look forward to working with all of you in the critical weeks and months ahead — and we are proud to be your partners.