Speech by SEC Staff:
Remarks at News Conference Announcing New SEC Leaders in Enforcement Division
U.S. Securities and Exchange Commission
January 13, 2010
Bruce Karpati, Co-Chief of the Asset Management Unit:
Over the last decades, the asset management industry has grown to encompass a huge percentage of both retail and institutional investors' wealth. And, it has grown much more sophisticated and complex. That's because the options for retail investment have increased beyond the standard mutual fund and the alternatives for sophisticated investors have vastly expanded.
The events of the last two years have highlighted the need for us to closely monitor the full spectrum of the financial services industry, from sophisticated financial institutions and investors to individual retail investors. Protection of investors is our responsibility and we can better perform that function by better understanding and focusing on the asset management industry.
We also need to keep current with an industry that is ever changing and evolving. The asset management industry is now in a period of consolidation, which brings new risks, including the potential for increased conflicts as advisers grow in size and complexity.
As we pursue violations of the law, our focus will be investment advisers, investment companies, mutual funds, hedge funds, and private equity funds. And the issues will be wide-ranging — from valuation and performance to due diligence and diversification. And much more.
Robert B. Kaplan, Co-Chief of the Asset Management Unit:
Our specialization unit will permit us to better identify asset management violations. By developing and maintaining a more detailed and specialized knowledge of the industry, we will gain the insights and understanding of the operations, motivations and strategies of investment advisers.
Bruce and I both have concentrated on aspects of the asset management industry during our careers at the Commission — and over the years we have worked on some significant cases in the industry.
Our unit will take a varied approach to identifying and pursing enforcement problems.
First, we will remain focused on the investigations at hand and aggressively pursue them. The subject matter is not new to us or the Enforcement Division as we have brought and continue to bring significant cases in this area.
Second, we will establish an infrastructure to develop and maintain a more specialized understanding of the asset management industry. This infrastructure will include a rigorous training program, industry outreach, and recruitment of expert staff.
Third, we will develop and utilize proactive investigative approaches that incorporate risk analytics and technology.
Finally, we will collaborate with others to leverage resources and expertise.
Daniel M. Hawke, Chief of the Market Abuse Unit
I want to thank Rob for giving me the opportunity to lead the Market Abuse Unit. I also want to thank Sanjay Wadhwa for his willingness to serve as Deputy Unit Chief.
The Market Abuse Unit will focus on suspected large-scale insider trading networks and rings — so-called "organized" insider-trading. Our Unit will also focus on large cap market manipulations, system-based and platform-driven trading violations such as front running, collusive trading, best execution and abusive short selling, and other systemic, institutional regulatory violations, internal control violations and other abusive market practices.
A core objective of our unit will be to go on offense. We plan to be pro-active by identifying patterns, connections and relationships among traders and institutions at the outset of investigations. We are also seeking to identify entry points at earlier points in investigations that we can exploit to uncover wrongdoing.
That is why a key objective will be developing and deploying automated trading data analysis. Through more sophisticated technology, we can give ourselves strategic advantages in the way we conduct complex trading investigations, particularly those involving large institutions.
The Unit will build upon what it learns from case-to-case and will develop specialized insights and understanding of the largest and most powerful institutions, market participants and professionals.
The Market Abuse Unit will be selective in the cases it investigates and will bring message cases to expose and deter the most egregious forms of market abuse-those highly sophisticated frauds that seek to separate investors from their money.
We plan to work closely with criminal authorities, will be relentless in pursuing our cases, and will seek to instill apprehension in those market participants who violate the law that they are undertaking ever-increasing risk of detection and consequences.
Kenneth R. Lench, Chief of the Structured and New Products Unit
I am very pleased to have been chosen as Chief of the Structured and New Products Unit. I believe that the group Rob has asked Reid Muoio and me to head has a great opportunity to contribute to the success of the SEC's enforcement efforts. Recent events have underscored the importance of having a thorough and timely understanding of structured products and other new complex financial instruments as they are introduced to the marketplace. Like the cop walking the beat, we must know the neighborhood and have a visible presence.
The Division is not new to this arena. In the coming weeks and months we can build on our solid foundation by further developing the expertise that already exists at the Commission.
There are a number of goals that I believe the group should pursue. First, I believe that, thanks to the concentrated resources that will be at the group's disposal, we will be in a position to quickly bring some high-impact enforcement actions.
Second, I would like to strategically initiate risk-based investigations in this area. Proper use of these types of investigations makes it possible to find wrongdoing that otherwise would have never seen the light of day, and dramatically alter market behavior.
Finally, I see the group functioning as a mini think-tank. In that regard, I see the group as an additional resource that investigators across the country and others at the agency can tap into.
The products are complex, the markets are opaque, the individuals are savvy, and their lawyers are smart. And, since the Unit's work also encompasses new products, we will always have to be on the cutting edge. To police this beat, we need to be every bit as intelligent and motivated as the professionals we regulate.
Cheryl J. Scarboro, Chief of the Foreign Corrupt Practices Act Unit
The Foreign Corrupt Practices Act was enacted, in large part, due to the groundbreaking investigative work of the SEC in the 1970's. And the Commission continues to be at the vanguard in its enforcement of this law.
Increased globalization has created the potential for serious exposure to international corruption. Bribery in international business transactions inhibits economic development, diverts scarce resources and distorts competition. It also destroys incentives to compete on quality and price. Although many companies have made significant inroads in their compliance efforts, there is more work to be done.
The Commission has brought landmark cases in recent years involving Siemens and Halliburton and the former CEO of KBR. Civil sanctions are at an all-time high. This is an opportune time for the Commission to dedicate more resources to this vital part of the Enforcement program.
I am honored to have been chosen to lead this Unit and am excited about the opportunity to build upon the work we have already done in this area
A primary mission of this Unit is to devise ways for us to be more proactive in our enforcement of the FCPA. Members of the FCPA Unit will gain in-depth knowledge of industries and regional practices so we can uncover corrupt practices that might otherwise go undetected. We will also conduct more targeted sweeps and sector-wide investigations, alone and with other regulatory counterparts both here and abroad.
In addition, because FCPA cases tend to have similar factual and legal issues, each case sets important precedent and serves as a guide to the corporate world. Consistent and aggressive enforcement by the SEC will set an international standard for non-U.S. regulators and serve as an incentive to non-U.S. regulators to more closely regulate corrupt practices.
Finally, the FCPA Unit will raise the Commission's profile on the global stage by playing a more active role in international regulatory working groups and building closer relationships with our regulatory counterparts in other countries. Aggressive enforcement of the FCPA is essential in a world of increasing interdependence. Companies and executives that adhere to anti-bribery laws should not be outmaneuvered by those who would gain advantage through bribery and deceit. The Unit will leverage the efforts of the SEC, the Department of Justice and our foreign counterparts to level the playing field worldwide. Together we will send a clear message that wrongdoers will face a strong and united front around the world.
Elaine C. Greenberg, Chief of the Municipal Securities and Public Pension Unit
Our deputy chief, Mark Zehner, and I have worked together in this area for many years. And, we believe that specialization is important to facilitate the Commission's ability to more effectively police the municipal securities market.
As you may know, the municipal securities marketplace is huge and continues to grow. Currently, about $2.8 trillion of municipal bonds are outstanding, and more than $400 billion of new bonds were issued last year. It is a reflection of the importance of the marketplace to our nation's future. That is because the vast majority of our significant environmental, educational, transportation and health care facilities are financed with municipal bonds.
With approximately 50,000 state and local issuers, it is a highly diverse market. With regard to public pension funds, this area is also quite large, with assets in the U.S. totaling about $2 trillion.
Yet, despite the size and complexity of this market, it is thinly regulated. Municipal securities are exempt from the registration requirements of the federal securities laws. They are, however, subject to the antifraud provisions. Consequently, one of the most effective ways to police this market has been through an enhanced enforcement response.
Our unit will focus on developing strong cases that send a resounding message about particular conduct — cases that will have an impact on the behavior of market participants. Through the unit, we plan to build a comprehensive enforcement program where we will develop the case law and legal precedent through the high impact cases that we bring.
We also will proactively seek to identify market activities that pose the greatest risk of harm to investors and are indicative of potential violations.
The unit will focus its efforts on investigating and pursuing enforcement actions in five categories of misconduct: (1) offering and disclosure fraud; (2) tax or arbitrage-driven fraud; (3) pay-to-play and public corruption violations; (4) public pension accounting and disclosure violations; and (5) valuation and pricing fraud.
Thomas A. Sporkin, Chief of the Office of Market Intelligence:
The Office of Market Intelligence will spearhead a new approach to proactive intelligence gathering, information collection and both human and automated analytics. We are going to blend the public complaint information that formerly came in through our Enforcement complaint center with the complex market data provided by the self regulatory organizations.
The idea is to create an integrated information tapestry that will help us identify market practices and activities that pose risks to investors.
Our primary goals will be to:
First, triage and develop tips and leads and to get that information to the right people within the Division in real time;
Second, use the experience of the professionals within the Office to proactively identify market practices and activities that pose risks to investors and assess how to best address those practices and activities.
The Office of Market Intelligence will work with the Other Divisions and Offices on the new "Tips Complaints and Referrals" workflow system that will be implemented Commission-wide in the coming weeks and months. That system is designed to get information quickly into the hands of staff that need it, and to ensure that nothing falls through the cracks. Additionally, it will provide all Enforcement employees with access to a data archive that can be: 1) searched for information relevant to their ongoing investigations; and 2) mined for fraud trends. The Office of Market Intelligence also will continue to coordinate the Division's market surveillance efforts, trading suspensions and its intake and analysis of SRO referrals.
OMI also plans to build and operate a state-of-the-art data collection, surveillance and analytics room. The tools in this room will be designed to cross analyze the information contained in various data bases, including the real-time trade data database that will soon be developed as a result of the "unified audit trail" initiative that staff throughout the Commission have been working on since this past summer.
This is an exciting time to be a member of the Enforcement Division and an exciting time to lead this new group.