Opinion

Alison Frankel

SEC Enforcement co-director: We’re bringing ‘swagger’ back

By Alison Frankel
October 1, 2013

Wachtell, Lipton, Rosen & Katz put out a plaintive client alert last week, responding to SEC Chair Mary Jo White‘s speech to the Council of Institutional Investors. White, who is, as you know, a former U.S. Attorney, emphasized the agency’s enforcement power and obligations. “The more successful we are at being – and being perceived as – the tough cop that everyone rightfully expects, the more confidence in the markets investors will have, the more level the playing field and the more wrongdoing that will be deterred,” she said in her speech on Sept. 26. Wachtell’s response questioned whether the SEC ought to be playing cops.

“As a regulator, the SEC’s only enforcement function is remedial – to shine a light on and improve business conduct, protect investors and markets, and deter future misconduct,” Wachtell’s memo said. “Historically, the SEC has been most effective when it has kept its focus on performing that regulatory function.” The agency already has a “robust and aggressive” enforcement program, argued Wachtell partners Theodore Levine, John Savarese, Wayne Carlin and David Anders (acknowledging that their view is not shared by the “many commentators and observers” who believe SEC enforcement is “anemic and faltering”). “It is our hope,” the memo said, “that the SEC will keep its eye on its regulatory role in charting the future course of its enforcement program.”

But based on a talk Tuesday at the Practising Law Institute by SEC co-director of enforcement Andrew Ceresney, the SEC has no intention of unflexing its muscles. In fact, Ceresney explicitly took issue with “those who believe the commission has become overly aggressive,” insisting to the contrary that there’s still plenty of “room for bolder action” by SEC enforcers. “My goal was to help bring the SEC’s swagger back,” Ceresney said. “I think we’re doing that.”

Ceresney, like White, is a former prosecutor. And like his boss in her speech last week to the institutional investors’ group, he said with no apologies that vigorous enforcement serves the public’s interest in deterring corporate misbehavior. Those exceptional cases in which the SEC, under its new policy, insists on admissions of wrongdoing by enforcement defendants? “Naming and shaming,” Ceresney said, inflicts pain on wrongdoers, who have to learn that settling with the SEC is not just a cost of doing business. (Basically echoing White’s speech from last week, the enforcement co-director gave some additional guidance on circumstances in which the agency will require admissions: when “public airing of unambiguous facts serves an important public interest,” particularly in helping investors decide whether to continue dealing with a defendant.) “Our frame is guilty pleas in criminal cases,” Ceresney said, citing the deferred prosecution template White created as a prosecutor.

The agency has also begun borrowing techniques from criminal investigations, as the SEC’s regional director in New York, Andrew Calamari, explained during a panel discussion following Ceresney’s keynote at PLI’s “White Collar Crime 2013″ conference. The SEC used to investigate mostly by obtaining documents through subpoenas and then deposing corporate officials. As of a few years ago, the enforcement division wouldn’t tell officials whether it was actually pursuing civil charges against them before demanding their sworn testimony. Now, however, “the criminal model has been adopted,” Calamari said. The SEC gives oral assurances to those it is not targeting to encourage them to talk informally with investigators, just like prosecutors granting immunity to obtain cooperation. “That’s a change,” Calamari said. “We’re getting people in the door sooner.” The tactic not only speeds up investigations, but also, according to a defense lawyer I spoke with, keeps Enforcement Division targets guessing about what exactly the agency is probing and what evidence it has.

After the panel concluded, I buttonholed Calamari’s fellow panelist Lorin Reisner, who’s now chief of the criminal division of the U.S. Attorney’s office in Manhattan but was previously the SEC’s deputy director of enforcement (and, like Mary Jo White and Andrew Ceresney, a onetime litigation partner at Debevoise & Plimpton). Given his background as both a prosecutor and regulator, I asked Reisner what he thought of the view that the SEC should focus on its regulatory role and leave punishment to prosecutors. “When I was at the SEC and I’d do these panels, people would say, ‘Our friends from the regulatory side,’” he told me. “But I never thought of myself as a regulator. I thought of myself as an enforcement attorney.” Enforcement isn’t regulation, he said, and there’s a reason the SEC has a division responsible for policing its rules. With investors demanding accountability from corporations that break those rules, he said, the SEC isn’t going to go back to its old ways.

“That ship has sailed,” Reisner said.

(Reporting by Alison Frankel)

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