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Opening Remarks at the 21st Annual International Institute for Securities Enforcement and Market Oversight

Chair Mary Jo White

Nov. 2, 2015

Good morning and thank you for joining us today.  I would like to welcome everyone to the SEC’s 21st annual International Institute for Securities Enforcement and Market Oversight.

This Institute has witnessed remarkable growth over the past two decades, and we are honored to have 159 delegates from 67 countries with us this week, making this one of our largest institutes ever.

Over the years, this Institute has been a tremendous opportunity for us at the SEC to talk and learn about new trends and laws and to share insights and techniques with colleagues from around the world.  And it has enabled us to forge relationships that strengthen our pursuit of wrongdoing in our increasingly connected, global financial markets.  Looking at your agenda, I have the same high hopes and expectations for this week’s Institute.  You will be covering insider trading, how to win securities fraud trials, market manipulation, accounting fraud, Ponzi schemes, techniques of market surveillance, high frequency trading, digital forensics tools, and much more.  It is an incredible program.

International Cooperation

Collaboration among our countries and agencies is critical because, as the global markets become more interconnected and complex, no one country or agency can fight fraud alone.  International cooperation is essential to police the global markets and to protect all of our citizens and markets.

The SEC has for many years cooperated extensively with foreign regulators and our cooperative arrangements have given us the ability to leverage the information and resources of our counterparts to strengthen our own enforcement efforts.  Through the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding (MOU), which now has over 100 signatories, we obtain crucial documents and testimony from individuals and entities overseas.  We also have 20 bilateral MOUs that allow us to further bridge international borders.

Last year, the SEC requested enforcement assistance from our colleagues abroad more than 900 times.  And we received reciprocal requests for assistance from our international partners more than 500 times.  We regard cooperation as very much a two-way street and strive to be as helpful a partner as we can.

Our efforts to foster greater cooperation produce tangible results in the form of cases.  For example, last year, with the assistance of the United Kingdom’s Financial Conduct Authority (FCA), we were able to bring charges against a former pharmaceutical company executive of InterMune and his close friend for insider trading.[1]  The former executive had access to confidential information about the progress of the company’s marketing application before the European Union regulatory body.  Our complaint charges that he tipped his close British friend, bought company common stock and himself tipped approximately a dozen other friends.  The FCA assisted us by compelling testimony and documents that were critical to our investigation.

Assistance from foreign authorities also helped us file a settled Foreign Corrupt Practices Act (FCPA) case in September against Hitachi, a multinational conglomerate.[2]  With the assistance of the African Development Bank and the South African Financial Services Board, we investigated payments to a front company of the ruling party in South Africa, in connection with contracts to build two power plants.  The company agreed to pay a $19 million penalty for its violations.

In addition to cross-border enforcement cooperation, the SEC works with many jurisdictions through our technical assistance program, which conducts international institutes and capacity building programs around the world.  We share our investigative practices, draft enforcement and examination manuals, and assist when asked to help craft statutory language so that all securities authorities can have the best legal powers available to fight financial crime.

Our mutual efforts to enhance cooperation and strong enforcement programs abroad are critical because, despite our different jurisdictions, and the multitude of financial structures and political systems we represent, we are united in one vitally important mission: combatting securities fraud, market abuse and other misconduct wherever it occurs.

Key Tools

To successfully achieve our respective missions, we need to use all of the enforcement tools in our arsenal.  My experience at the Commission, as well as my time as a criminal prosecutor, have underscored the importance of attacking misconduct in as many ways as we can in order to sufficiently punish wrongdoers, protect investors and the markets, and achieve strong deterrence of other would-be fraudsters.

Strong Remedies: Strong enforcement starts with strong remedies.  Levying meaningful sanctions against individuals and firms is essential.  Tough sanctions capture the attention of boards and shareholders, who are in a position to bring about constructive corrective action, which can range from changes in management and compensation to an overhaul of corporate culture.  In the last few years, the Commission has been more aggressive in our use of penalties and other remedies to send a strong message of deterrence.  In this past fiscal year, for example, we obtained orders for $4.2 billion in monetary remedies – a Commission record.  We also brought a record number of cases – 807.

Individual Liability:  Any discussion of strong enforcement tools must include a discussion of our priority of pursuing individuals.  Personal accountability, of course, is a basic tenet of law enforcement.  And individual accountability, particularly at the most senior levels, is a core part of our enforcement program because firms can only act through their people and it is people to whom we are trying to send our strong message of deterrence.  While some cases, because of the available evidence or charges, are appropriate to bring only against companies, we must always look to identify and charge those people who are responsible for their company’s wrongdoing.  In Fiscal Year 2015, about two-thirds of our substantive actions included charges against individuals.

Redress for wrongdoing can never be seen merely as a cost of doing business made good by cutting a corporate check.  When people fear for their own reputations, careers, or pocketbooks, they are more likely to stay in line.  So when investigating misconduct, our staff first looks at the individual conduct and works out to the entity, rather than starting with the entity as a whole and working in.

And when we do bring charges against individuals, we consider, in addition to tough charges and penalties, our remedies to prevent future wrongs as well.  One of our most potent tools is an order imposing a bar on an individual – a bar from, for example, working in the securities industry or serving on the board of a public company.  Such an order can reduce the likelihood that the defendant can defraud and victimize the public again.

Whistleblowers:  Another valuable tool in our arsenal is the Commission’s whistleblower program.  The program encourages those with knowledge of wrongdoing to come forward voluntarily by rewarding them for providing the Commission with original information that leads to a successful enforcement action or a related action that achieves monetary sanctions exceeding $1 million.  The program has been very successful so far:  In Fiscal Year 2015, the Commission received over 4,000 tips and, in all, since the program started in 2010, we have paid out more than $50 million in whistleblower awards.

Data and Technology

As our markets and market participants continue to evolve, so must our tools of analysis and detection.  At the SEC, we have made great strides in leveraging data and technology to detect and pursue misconduct.  In the Enforcement arena, the Commission is using data analytics to help identify wrongdoers and conduct streamlined investigations to optimize our resources.

For example, the Commission staff is analyzing trade data in complex ways to identify repeated fraudulent activity and unusual trading by individual traders and insider trading rings.  More traditional tools look at issuers with big news that may be preceded by unlawful trading based on insider information.  But our staff also developed a tool called ARTEMIS, which stands for the Advanced Relational Trading Enforcement Metrics Investigation System.  This initiative analyzes suspicious trading patterns and relationships among multiple traders and uses the Division’s electronic database of over 6 billion electronic equities and options trading records.  It seeks to generate high-quality leads for new investigations and to automate and improve the analyses more conventionally run in existing investigations.

Our new data tools are paying off.  In one recent case, for example, the SEC charged 34 defendants in an action charging a scheme to profit from stolen nonpublic information about corporate earnings announcements.  This action was developed through the use of innovative analytical tools designed to find suspicious trading patterns and expose misconduct.  Since filing the emergency action, the SEC has obtained a $30 million settlement from two of the defendants.

This particular case also demonstrates the importance of international cooperation.  Our international counterparts, including the UK FCA, the Danish Financial Supervisory Authority, and others, helped with identifying suspicious trading, obtaining beneficial ownership information, and ultimately in securing the international asset freezes that are so critical in these cases to enable us to return money to harmed investors.

Our examination staff is also leveraging technology to enhance the SEC’s inspection capabilities.  The National Exam Analytics Tool (NEAT) enables examiners to access and systematically analyze an incredible amount of trade data in minutes.  What used to take weeks or months can now be completed in a matter of hours.

While we cannot be everywhere at once, through the use of data and technology, we can greatly expand the reach of our enforcement and examination programs.  And we are working all the time to develop new tools that will make us smarter and faster.  You will have several opportunities this week to be exposed to what some of those tools are and how we are using them.

Conclusion

It is through such sharing of technology, data, and ideas, in addition to more immediate assistance in particular cases, that we can further strengthen our enforcement efforts globally.  Here at the SEC, we will continue to look for opportunities to expand our collaboration and cooperation with you.  Through such efforts, we will continue to improve our collective ability to protect investors and safeguard the integrity of our markets. 

Thank you for coming.  Have a great and productive week.


[1] Litigation Release No. 23125, SEC Charges Former Pharmaceutical Company Executive and Friend with Insider Trading (Oct. 31, 2014), available at https://www.sec.gov/litigation/litreleases/2014/lr23125.htm.

[2] Press Release No. 2015-212, SEC Charges Hitachi With FCPA Violations (Sep. 28, 2015), available at http://www.sec.gov/news/pressrelease/2015-212.html.