More Capital Markets Summit – SEC Enforcement Is On The Job

Batting cleanup at the Capital Markets Summit last Wednesday was Linda Thomsen, Director of the Division of Enforcement at the SEC.

Although many have claimed, and still claim, that Enforcement is not bringing enough cases, it can’t be for lack of either opportunities or enthusiasm by its leadership. 
Inquiry into SEC’s enforcement arm
The Securities and Exchange Commission is to be investigated by the US congressional watchdog, after a senior senator questioned whether the agency had sufficient staff and funds to police the markets.

Democratic Senator Jack Reed said on Tuesday he and Chris Dodd, the Senate banking committee chairman, had asked the Government Accountability Office to examine the SEC’s enforcement division – marking the second time in 18 months a member of Congress has asked for a review of the division’s activities.

They sought the review after penalties and the repayment of ill-gotten gains ordered by the SEC fell by almost half in the last fiscal year to $1.6bn (€1.25bn, £810m), said Mr Reed, who heads the banking committee’s subcommittee on securities, insurance and investment.  He said the sharp decrease “raises questions about whether changes have taken place in enforcement philosophy or scope of activity”.

Edith Orenstein pretty much sums up what the Chamber thinks of Enforcement, regardless whether the Democrats in Congress feel that Ms. Thomsen is not doing enough.

Speaking of Thomsen, someone from the Chamber gave her a great introduction, comparing the SEC Enforcement Director coming to the U.S. Chamber like “Nixon Coming to China.” Her speech is not posted at this time, if it is we’ll add a link. She focused on insider trading, drawing comparisons to characters in the 1983 movie “The Big Chill,” and noting, among other things, some of the younger perpetrators the SEC is catching today may not have even heard of the lessons of the insider traders prosecuted in the 1980’s.

To close the Nixon coming to China analogy, following Thomsen’s remarks, David Hirschmann of the Chamber thanked Thomsen for speaking, and noted that business supports aggressive enforcement against fraud, and at the same time, business wants to see fairness in enforcement. Thus, he noted the Chamber may have a shared partnership with the SEC…getting back to the topic of alleged con’s or fraudster’s and the subprime crisis, Reuters reporter Karey Wutkowski, covering SEC Enforcement Director Linda Thomsen’s remarks at the Chamber, wrote, “SEC Official Says More Subprime Fraud Could Surface.”

Ms. Thomsen summarized the activities and priorities of the Enforcement Division by noting that they were required by market realities to maintain vigilance in a broad sense. If they take their eye off the ball in any area, however small, that area may turn out to be the next big thing. Some areas they continue to emphasize and where they expect more cases:

1) Fraud related to microcap securities and OTC securities
2) Repeat perpetrators
3) Related third party fraud such as lawyers, accountants and promoters of fraudulent securities offerings

Ms. Thomsen also mentioned that they are always looking at insider trading, always looking for tips and patterns leading them to these cases.

I asked Ms. Thomsen the following question, in so many words:

“Ms. Thomsen, I think you have not given your team enough credit in your remarks for being ahead of the curve on the backdating issue. Although the trends were identified by an academic, your enforcement was ahead of most business appreciation of the amount of fraud that took place. And you’re still enforcing it, even though the business world has moved on. Along those lines, what’s the next big thing from the academics, the data you’re seeing and the opportunities to take advantage of academic studies in particular?”

Ms. Thomsen thanked me for my compliment and acknowledged the support of academic studies in pointing her team to areas where more focus and emphasis may be warranted. She indicated that the Enforcement Division welcomes ideas and input from academics in identifying patterns of data and activity which may point to illegal behavior. In particular, they have been looking at 10b5-1 plans. They always like to see data regarding IPOs and insider trading patterns, for example.

So Prem, send your studies to Ms. Thomsen.  She’s always looking for ideas.
1 reply
  1. Independent Accountant
    Independent Accountant says:

    The SEC brings plenty of cases. In my opinion, the vast majority are peanut cases not worth bothering with.

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