Top Emerging Trends

Winer on the SEC's Enforcement Developments

In October 2008, the SEC's Enforcement Division adopted a manual setting forth general policies and procedures on the investigation of potential securities laws violations. In February 2009, SEC Chairman Mary Schapiro made two announcements changing the Commission’s internal process at both the beginning and the end of an investigation. In this Commentary, Kenneth Winer discusses these developments and their implications for corporate and defense counsel. He writes:
     Section 2 of the [SEC’s Enforcement} Manual sets forth the procedures for (and factors to be considered in) opening matters under inquiry (MUI), seeking formal orders, evaluating each formal or informal investigation semi-annually, issuing Wells submissions, closing SEC investigations and issuing closing letters. Reviewing the Manual’s discussion of these matters will assist counsel in assessing the significance of various developments and in explaining to the client what is likely occurring (or has occurred) at the Commission.
     Section 3 of the Manual contains a discussion of the issuance of a letter (a "witness assurance letter") to a witness assuring the witness that the SEC does not intend to bring an enforcement action against him or an associated entity in return for the witness agreeing to provide testimony, documents and information. The information in the Manual can be very valuable to counsel who represent a witness or entity who has information that the Commission desperately wants and can only obtain from that witness if that witness voluntarily chooses to provide the information (e.g., the witness is located in a country with which the SEC and the United States do not have a memorandum of understanding or mutual assistance treaty, respectively). Section 3 of the Manual also contains a limited discussion of the procedures and criteria by which the Staff can obtain an order granting use immunity to a witness who has asserted the Fifth Amendment privilege against self-incrimination.
     . . . .
     Each year, the SEC hosts a conference call, "The SEC Speaks". At the February 2009 conference, the Chairman and each Commissioner, as well as the senior members of the SEC Staff, summarized the significant developments of the prior year and indicate the objectives for the upcoming year. Characterizing enforcement as "a foundation of the agency," SEC Chairman Mary Schapiro promised, "A strong and reinvigorated SEC will be on the beat like never before to catch wrongdoers." Chairman Schapiro made two announcements changing the Commission’s internal process at both the beginning and the end of an investigation. Both changes are intended to "empower" the SEC Enforcement staff. First, in order to expedite the process by which the Commission approved the formal orders that authorized the Staff to issue subpoenas, Chairman Schapiro announced that she had directed the SEC to return to the prior policy under which the Commissioners routinely issued formal orders without requiring consideration at a meeting of the Commissioners. Second, Chairman Schapiro terminated a two-year "pilot" project instituted by her predecessor, Chairman Christopher Cox, which had required the Enforcement Staff to obtain guidance from the Commissioners in cases involving civil monetary penalties against public companies. In addition, Deputy Director of Enforcement George Curtis, made comments indicating that the Staff might take a more expedited approach to the conduct of investigations.
(citations omitted)