On Tuesday, November 16, 2011, six SEC Directors appeared before the Senate Committee on Banking, Housing and Urban Affairs Subcommittee on Securities, Insurance, and Investment to provide a progress report on Management and Structural Reforms at each of their respective divisions at the SEC (their testimony is available here). The witnesses acknowledged the comments made in a report by the Boston Consulting Group (previously discussed here) who examined internal operations, structure and need for reform at the SEC (which has also resulted in a report from the SEC’s Chief Operating Officer, described here). The testimony discussed "a number of significant steps that [the SEC has] taken over the past few years in our divisions and offices to reform and improve [its] operations."
The six witnesses who testified were:
• Robert Khuzami, Director, Division of Enforcement;
• Meredith Cross, Director, Division of Corporation Finance;
• Robert Cook, Director, Division of Trading and Markets;
• Carlo di Florio, Director, Office of Compliance Inspections and Examinations;
• Eileen Rominger, Director, Division of Investment Management; and
• Craig Lewis, Chief Economist and Director, Division of Risk, Strategy, and Financial Innovation.
This blog entry will review the comments of Mr. Khuzami and his efforts at the Division of Enforcement. He emphasized the structural reforms at Enforcement ("the most significant structural reforms of the enforcement program since 1972") which were designed to maximize resources. Those reforms included the introduction of five "specialized investigative units dedicated to high priority areas of enforcement," as well as the adoption of a "flatter, more streamlined organizational structure," which focused on allocating more personnel to conducting "front-line investigations."
The Division of Enforcement also created an Office of Managing Executive (who serves a "COO-type" role to assist with IT forensics, litigation support and case management systems) and an office of Market Intelligence (to handle tips, complaints and referrals). Mr. Khuzami also highlighted the new Office of the Whistleblower created under the Dodd-Frank Act, as well as the Commission’s new cooperation incentives, which "encourages ‘insiders’ with knowledge of wrongdoing to come forward early, thus allowing us to build stronger cases and shut down fraudulent schemes earlier than would otherwise be possible."
Mr. Khuzami reviewed the results the of the Commission’s enforcement activities, reiterating much of the information previously announced in a November 9, 2011 Press Release (discussed here) that it had filed 735 enforcement actions in the fiscal year ending September 30, 2011 (which were the most enforcement actions filed in a single year) and that more than $2.8 billion in penalties and disgorgement was ordered in 2011 SEC enforcement actions.
Mr. Khuzami told the Senate Committee the Division of Enforcement that the "fiscal year 2011 achievements in both the quality and quantity of cases reflect that [the Division of Enforcement is] achieving both" of its overarching goals: stopping fraud and misconduct as early as possible and being an effective enforcement and deterrent force in complex markets.
Mr. Khuzami also identified the upcoming challenges faced by the Division of Enforcement, which include "securing the necessary expertise, human capital and technology resources" to fulfill its mission, and improving its "ability to analyze large volumes of information, including both structured and unstructured data."
