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U.S. Securities and Exchange Commission

Speech by SEC Staff:
Remarks at Department of Justice Press Conference


Robert S. Khuzami

Director, Division of Enforcement
U.S. Securities and Exchange Commission

Washington, D.C.
November 17, 2009

In an effort to address the causes of the financial crisis, regulators and others have rightly focused on supervision of financial institutions, market structure and regulatory reform.

Today, we focus on another critical component of restoring faith and confidence in our markets — the effective enforcement of our laws against fraud and wrongdoing in our financial markets.

Vigorous enforcement is critical because it offers immediate and public vindication of certain bedrock principles. These principles include:

  • That no one should have an unfair advantage in our markets and that investors have a right to truthful and accurate disclosure;
  • That there be a level playing field; and
  • That if you stray into foul territory, there is a high risk that you will be caught, prosecuted and punished.

That is why today's announcement of the Financial Fraud Task Force is so significant.

It is a way for us to mount an even better organized and more collaborative response to the pain and losses caused by the financial crisis.

The Task Force will improve our chances of identifying wrongdoers and thus restoring confidence in our markets.

One of the vital aspects of the Task Force will be to better coordinate criminal and civil enforcement efforts.

As the Director of Enforcement of the SEC, and a former federal prosecutor with the Department of Justice, I have seen first-hand the benefits of coordinated civil and criminal enforcement efforts.

And coordination is a virtue that we at the SEC have learned well.

In fact, in FY 2009, more than 150 of the SEC's enforcement cases were filed in coordination with criminal charges filed by the DOJ and others, an increase of 30 percent over FY 2008.

The Task Force should only increase those numbers, and provide even greater opportunities for close collaboration and information sharing among law enforcement authorities.

The creation of the Task Force occurs at a time that we at the SEC have taken a series of steps to optimize our effectiveness. These will make us an even more effective partner to other Task Force members.

For example, we are launching national specialized units, three of which will focus on such things as derivatives and securitized products; broad-based insider trading and market manipulations; and fraud among hedge funds and investment advisers.

We are also streamlining management and redeploying additional staff to the front-line task of conducting investigations and rationalizing our procedures to make us more nimble and better informed.

These internal changes at the SEC, combined with the opportunities for collaboration as a member of the Task Force, will further enhance our vigorous and focused enforcement efforts.

We come to the Task Force with a long history of successful financial fraud enforcement, and our recent efforts continue this record of accomplishment.

More than half of our cases in recent years have targeted financial fraud, market manipulation, and wrongdoing by investment advisers, investment companies and broker-dealers.

Our recent cases reflect a focus on credit crisis-related misconduct. For example, we have brought cases charging:

  • Accounting manipulations by an Atlanta homebuilder and mortgage lender;
  • Improper sale of risky Collateralized Mortgage Obligations to senior citizens, retirees and other unsophisticated investors;
  • Concealment by a mortgage lender and its executives of its deteriorating business model and increasingly risky mortgage lending practices;
  • Inflated valuation of commercial and residential mortgage-backed securities by a mutual fund, and selective disclosure to favored investors that writedowns in that fund were imminent, thus allowing them to sell ahead of others and avoid losses; and
  • Insider trading using credit default swaps to illegally profit from material nonpublic information about an upcoming leveraged buy-out deal.

In addition, this past fiscal year — as compared to last year — the SEC:

  • Increased disgorgement orders by 170%;
  • Increased penalty orders by 35%;
  • Increased emergency restraining orders by 82%;
  • Increased asset freezes by 78%.
  • Finally, we have returned about $6.6 billion to injured investors since the 2002 passage of Sarbanes-Oxley Act.

In all of these efforts, we have coordinated our enforcement efforts closely with other law enforcement agencies. This Task Force will further invigorate our collective efforts.

The SEC is proud to participate as a member of the Task Force and I commend the Attorney General for his efforts in leading this important initiative.

I am pleased now to introduce Secretary Geithner.


Modified: 11/17/2009