SEC Director of Division of Enforcement Testifies about SEC's Budget Request and Division Priorities (with Lofchie Comment)

SEC Director of the Division of Enforcement ("Division") Andrew Ceresney testified before the House Committee on Financial Services. He spoke about the Division's enforcement priorities and how it will use the additional resources in the SEC's 2016 Budget Request.

According to Mr. Ceresney, the SEC's FY 2016 Budget requested an additional 93 positions for the Division. He explained that the Division will use the additional positions and resources to:

• expand the Division's data analytics expertise to assist in the development and implementation of data projects and new investigative tools, as well as increase staffing for the collection and analysis of, and follow-through on, tips, complaints and referrals received by the Division;
• hire accountants, attorneys, industry experts and other professionals in order to "promptly detect, prioritize, and effectively investigate" wrongdoing; and
• hire additional trial attorneys and support staff to prosecute the Division's expanding docket of litigation and trials.

Additionally, Mr. Ceresney discussed the Division's enforcement priorities, which include the following:

• pursuing financial reporting and auditing violations;
• investigating investment advisers and their managed funds for conflicts of interest, misrepresentations of performance or investment strategies, breaches of fiduciary duties, custody rule violations, and other fraudulent conduct;
• enforcing statutes and rules related to market structure now that "the proliferation of sophisticated trading technologies, such as algorithmic and automated trading, have transformed the securities markets";
• reviewing certain scenarios involving municipal securities, including misrepresentations in connection with bond offerings and failures by underwriters to meet their obligations;
• engaging in a coordinated approach to pursuing misconduct in microcap securities and pyramid schemes;
• investigating complex financial instruments such as residential mortgage-backed securities and collateralized debt obligations;
• holding gatekeepers such as attorneys, accountants, fund directors, board members, and others accountable for their failure to "live up to their responsibilities"; and
• the Foreign Corrupt Practices Act.

Lofchie Comment: A number of the Division's priorities stand out: (i) market structure, which could be worrisome if "enforcement" means prosecuting any technology failure or using enforcement powers to create laws that define and punish impermissible trading strategies; (ii) municipal securities, which could see a significant rise in enforcement actions; (iii) complex instruments, which will require deeper understanding of various types of products and how they work; and (iv) gatekeepers, such as fund directors and other board members, which may require increased levels of detailed oversight.

See: Mr. Ceresney's Testimony; Information about the Hearing.