SEC Chair White Delivers Speech Promoting the SEC's Enforcement Program (with Lofchie Comment)
SEC Chair Mary Jo White delivered a speech at the Securities Enforcement Forum which focused on the SEC's efforts to enhance its enforcement program's presence in the marketplace by pursuing both big and small violations of federal securities laws.
Chair White touted the so-called "broken window" theory of regulation, stating that it is important for the SEC to pursue minor legal violations, as they can feed into larger ones, and highlighting that even violations such as control failures, negligence-based offenses, and violations of prophylactic rules with no intent requirement must be pursued. Chair White said that the SEC is enhancing its presence in the marketplace by taking steps to leverage the strength of its exam program, incentivize whistleblowers with significant monetary rewards, collaborate with other regulatory agencies, and utilize technology to make it easier to spot fraud through programs such as the Advance Bluesheet Analysis Program.
Additionally, Chair White noted that the SEC is focusing more on those who play the role of gatekeepers in the financial system, such as investment company boards and auditors, through programs like Operation Broken Gate, an initiative to identify auditors who neglect their duties. The SEC has also enhanced its presence in the microcap community, according to Chair White, using resources such as the Microcap Fraud Task Force.
Chair White made sure to emphasize that the SEC will still prioritize bigger cases, noting the newly created Financial Reporting and Audit Task Force, which brings together a group of attorneys and accountants to develop techniques for identifying and uncovering accounting fraud.
Chair White concluded by saying that, while she realizes the SEC cannot literally be everywhere in the marketplace, the aim is "to create an environment where you think we are everywhere."
Lofchie Comment: To take a somewhat contrary view, I feel that the SEC should not emphasize its role as an enforcement agency over its role as a regulatory agency. Enforcement actions are necessary as a deterrent and to give meaning to prohibitions. On the other hand, at least equal significance should be given to making sure that rules are clear, are achievable and serve a public policy purpose. A good deal of the decision to bring enforcement actions necessarily involves judgement; e.g., in the case of what the Chairman calls "negligence-based offenses," where the accused did not intend any violation but is charged with exercising insufficient care. There the danger is that any mistake made by an entity or a person - and people inevitably make mistakes and systems inevitably work imperfectly - can become the basis for an enforcement action. Perhaps the enforcement system should be subject to a check which would make it impermissible for a regulator to bring an enforcement action where a business acted with a level of care equivalent to that which is ordinarily exercised by the relevant government agency.