SEC Commissioner Hester M. Peirce defended her position that "the SEC is not an enforcement agency, but rather a regulatory agency that uses enforcement as one tool." In remarks at Rutgers Law School, Ms. Peirce stated that when considering enforcement actions, the SEC should not apply a "broken-windows" philosophy and harshly punish small violations.
Ms. Peirce criticized how the SEC has enforced violations of fiduciary duty. She criticized, among other things, the SEC's presentation of 79 enforcement actions that arose from the recent Share Class Selection Disclosure Initiative by the Division of Enforcement (the "Division"). Under the initiative, the Division encouraged investment advisers to self-report any history of putting clients in higher-cost shares despite the availability of lower-cost shares. According to Ms. Peirce, the 79 enforcement actions were presented as "one package" without distinguishing key details. Specifically, Ms. Peirce said that while some of the firms lied and accepted Rule 12b-1 fees despite saying they did not, others simply had subpar disclosures but had disclosed conflicts of interest.
Ms. Peirce noted that the SEC has been inconsistent over the years in its interpretation of fiduciary duty in enforcement proceedings. Ms. Peirce stated that the large number of participants in the initiative shows that the SEC failed in its job as a regulator. To remedy this failure, she urged the SEC to implement guidance or rulemaking to clarify its interpretation of fiduciary duty. Additionally, she cautioned the SEC against overreaching through enforcement actions. In particular, Ms. Peirce worried that the recent U.S. Supreme Court decision in Lorenzo v. SEC would entice the SEC to apply the decision as broadly as possible.
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