SEC Announces Investment Protection Priorities

Posted on April 7th, 2014 at 9:00 AM

From the Desk of Jim Eccleston at Eccleston Law Offices:

In a pair of speeches given recently, Securities and Exchange Commission (SEC) Chairwoman Mary Jo White, has provided clear guidance as to what the SEC intends to accomplish in its mission to protect investors. In mid-March, Ms. White spoke to the Consumer Federation of America Assembly. Later that month, she spoke to a securities industry compliance and legal society. Taken together, the speeches reveal important SEC priorities, as I discuss below.

            A primary priority is what White described in the title of her speech as a “robust use” of referrals of matters to criminal prosecutors. White observed that, “There are, of course, no more powerful tools than a criminal conviction and the prospect – the reality – of imprisonment.” She went on to discuss the “strong partnership” that the SEC, that she (as a former U.S. Attorney) and the criminal authorities have in connection with joint cooperation and parallel actions. White also discussed standalone SEC actions, and why they make the most sense in certain circumstances. Those circumstances include cases in which the SEC can enforce its unique remedies to protect investors, such as obtaining asset freezes, trading suspensions, bars from the securities industry and temporary injunctions to stop a fraud in its tracks.

            A second priority of the SEC is revealed in the types of enforcement actions that the SEC recently has brought. Those include insider trading cases (20% of which have involved a parallel criminal prosecution), microcap fraud (almost all involving parallel criminal prosecution) and financial reporting fraud (almost all not involving a parallel criminal prosecution).    

            One important highlight in the enforcement area is the SEC’s new position relating to the language of enforcement settlement agreements with respondents. That is, in the past the SEC routinely allowed respondents to neither admit nor deny the SEC’s findings and allegations against the respondents. While White continues to defend this practice in certain circumstances and states that the practice will continue, she also outlined cases where the SEC will insist that respondents admit to the SEC’s findings and allegations. She told the audience: “We now consider requiring admissions in cases where the violation of our securities laws includes particularly egregious conduct, where large numbers of investors were harmed, where the markets or investors were placed at significant risk, where the conduct obstructs our investigation, where an admission can send a particularly important message to the markets or where the wrongdoer poses a particular future threat to investors or to the markets.”

             A third SEC priority is investor protection through education. White discussed recent SEC publications on topics such as fees and expenses, and variable annuities. She also detailed how the SEC has issued “Fraud Alerts” on such topics as fraudulent pyramid schemes, fraudulent investment schemes, and email spam promoting “pump and dump” stock scams.

            A fourth SEC priority is the resolution of the longstanding issue of whether there can and should be a uniform fiduciary duty standard applied to both brokers (known as “registered representatives”) and SEC-registered investment advisers. The Dodd-Frank Act granted the SEC authority to impose that kind of uniform standard. Now it is time for the SEC to act.  White acknowledges that the issue “is very important and we need to move forward to a decision.”

            A fifth and final SEC priority especially worth noting is the impact of high-speed, technology driven systems on the market and whether retail investors are being harmed.  Ironically, well-known author Michael Lewis just unveiled his new book. It addresses how both large and small investors are being duped by traders utilizing high-speed programs.  Immediately thereafter various regulators opened numerous investigations of securities firms.  It will be interesting to see what transpires!

            Meanwhile, SEC Chairwoman White appears to be on the right course to strengthen SEC investor protections. All market participants should welcome those efforts.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.


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