The SEC Speeds Up Its Enforcement Arm

Amid a rash of criticism, the regulator's new Chairman Schapiro and enforcement chief Khuzami are trying to unclog the agency's case load
Businessweek
By Theo Francis and Nanette Byrnes
2009/08/17
It has been a big week so far for the market cops at the Securities & Exchange Commission: Each day brought a new multimillion-dollar settlement, most involving high-profile people or companies—Bank of America (BAC), General Electric (GE), and two former executives of American International Group (AIG), plus two smaller trading firms.
That kind of change has been welcome at the agency—in particular, its Enforcement Div.—following months of pummeling by politicians and pundits alike for missing Ponzi schemes, standing by as the investment banks gorged on debt, and doing too little (or too much) to rein in controversial market practices. But many securities lawyers suspect the shift is also a sign of things to come—especially when combined with other changes at the SEC's Enforcement Div. and comments by its chief. The likely result: An Enforcement Div. that functions much more like a criminal prosecutor's office, moving swiftly, cutting deals, and focusing resources on high-profile issues, among other developments.
"This suggests bringing a prosecutorial mindset to a civil law enforcement agency," says securities attorney Mark K. Schonfeld, a partner at Gibson Dunn & Crutcher, who headed the SEC's New York office until last fall.
Accelerating Actions
So count on more long-lingering cases to come to a head. The charges against former AIG executives Hank Greenberg and Howard Smith, for example, date to 2005 and earlier, while the action against GE goes all the way back to 2002 and 2003. Such cases "move at their own speed, but there is ability within the agency to speed things up or slow things down," says Fiona Philip, a partner in Howrey's securities law practice and previously enforcement counsel to the SEC's chairman.
The agency's newly minted enforcement chief, former federal prosecutor Robert Khuzami, vowed on Wednesday, Aug. 5, to move swiftly—saying in a speech to New York lawyers that "a sense of urgency is critical" and "long gaps between conduct and atonement undermine the deterrent impact of our cases and result in missed opportunities to achieve a permanent change in behavior and culture."
Khuzami spent nearly a dozen years as a federal prosecutor in New York, trying cases ranging from Ponzi schemes to the terrorism trial of Omar Ahmed Ali Abdel, the "Blind Sheikh" tied to the 1993 World Trade Center bombing. Immediately before joining the SEC, he had served as the Americas general counsel for Deutsche Bank (DB). Khuzami replaced Linda Thomsen, who left for private practice amid criticism that the Enforcement Div. had been sloppy in several high-profile incidents.