SEC investigations will place
more emphasis on individuals
Nikki Kahn/The Washington Post -
Mary Jo White, chair of the Securities and Exchange
Commission, is focusing the agency’s enforcement program on the pursuit
of individuals, not just companies.
Wall Street’s top cop said
Thursday that her agency is sharpening its focus on individual
wrongdoers and making a “subtle shift” in the way it pursues them.
Securities and Exchange Commission Chairman Mary Jo White said
she has asked her enforcement staff to start probes, when possible, by
first taking a hard look at the people suspected of misdeeds within a
company, and not just the company itself.
“I want to be sure we are looking first at the individual
conduct and working out to the entity, rather than starting with the
entity as a whole and working in,” White said at a conference of the
Council of Institutional Investors in Chicago. “It is a subtle shift,
but one that could bring more individuals into enforcement cases.”
In
the wake of the financial crisis, the SEC has repeatedly come under
attack for failing to hold enough high-profile executives accountable
for their roles in sinking the global economy. Since joining the agency
in April, White has pledged to flex the SEC’s muscle, a message she
reinforced Thursday.
The speech was one of the most thorough
public statements White has made about the agency’s agenda under her
watch, and it touched on several SEC priorities, including more robust
monitoring of the financial markets and speedy implementation of the
many regulations demanded by Congress in recent years.
But White’s most forceful statements were about the enforcement arena. The
former federal prosecutor said the agency should not shy away from
tough cases, ignore smaller ones or cut off any legal avenues when it
detects wrongdoing — even if that means bringing cases of negligence
instead of more serious fraud charges.
“If we do not have the
evidence to bring a case charging intentional wrongdoing, then bring the
negligence case that does not require intent,” White said.
Although
the SEC pursues only civil cases, and therefore cannot put executives
behind bars, the agency should impose meaningful penalties on wrongdoers
that make “companies and the industry sit up and take notice of what
our expectations are,” White said.
Earlier this year, White announced that the agency would start demanding admissions
of wrongdoing in certain types of cases — a major departure from a
previous policy that routinely allowed defendants to settle cases
without admitting or denying liability. White said Thursday that she
expects the new approach to lead to more trials.
“We recognize
that we may see more financial firms that say, ‘We’ll see you in
court,’ ” she said. “But that will not deter us. The SEC has a
well-established record of winning when we go to trial.”
Soon
after White joined the SEC, the agency went after one of its most
high-profile targets when it charged hedge-fund billionaire Steven A.
Cohen with ignoring “red flags” indicating that two of his employees
engaged in insider trading.
Last month, the SEC won a huge trial victory when a federal jury found former Goldman Sachs executive Fabrice Tourre liable
for duping investors about a shoddy mortgage deal, handing the SEC a
major win in one of the few cases to emerge from the financial crisis. However,
some critics downplayed the victory, faulting the SEC for going after a
mid-level trader instead of his higher-level Goldman bosses.
A similar complaint arose this month after JPMorgan Chase agreed to pay the
SEC $200 million — one of the largest SEC penalties ever — as part of a
broader $920 million settlement with federal regulators involving the
bank’s handling of the disastrous “London Whale” trading losses. As part
of the settlement, the bank admitted wrongdoing. But none of the bank’s
senior managers were named in the SEC order.
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