The SEC Speaks. Are You Listening?

“SEC Chairman Elisse Walter … remarked that the SEC should work to give investors access to information and protect them from unnecessary risks such as fraud, market manipulation, insider trading and market structure failures, but should not discourage all risk-taking, in order to allow for continued growth in public offerings.” (Katten Muchin Rosenman)

In late February, the Securities and Exchange Commission held its annual conference in which SEC Commissioners and senior leadership at the agency set forth priorities and objectives for the coming year.

Called “SEC Speaks,” the event provides valuable insight to corporations and financial institutions seeking to avoid unnecessary regulatory scrutiny.

What exactly is the SEC talking about? Here are five priorities:

1. Insider Trading:

“Sanjay Wadhwa, the senior associate director of Enforcement in the SEC’s New York office, noted that insider trading is still a high-priority area. Since the Raj Rajaratnam prosecution, the SEC has brought 175 enforcement actions alleging insider trading against 435 defendants involving illicit profits in the neighborhood of $900 million. Wadhwa noted that hedge fund insider trading will continue to take up much of the SEC’s attention as the Galleon, and related expert network investigations, have revealed a ‘treasure trove of information.’” (Perkins Coie)

2. Foreign Corrupt Practices Act violations:

“Kara Brockmeyer, chief of the Enforcement Division’s FCPA specialized unit, provided a general overview of the recent FCPA Resource Guide that was jointly published by the SEC and DOJ in November 2012… Brockmeyer also stated that the Guide emphasizes the need for appropriate corporate compliance programs, but noted that compliance programs are not ‘one size fits all.’ A company’s compliance program should be designed to minimize risks specific to the company’s business and should evolve over time. She also stated that the best programs are integrally intertwined with a company’s financial controls. She said that she and her colleagues are struck by how often companies discover FCPA violations when investigating employees for financial crimes like embezzlement. These situations typically occur, Brockmeyer added, when companies lose control of their assets and financial books and records.” (King & Spalding)

3. Illegal activity in the mutual funds and private equity industry:

“Bruce Karpati, Chief of the Asset Management Unit, emphasized the unit’s focus on the mutual fund and private equity industry. With regard to mutual funds, Karpati said that the Division will actively investigate: whether funds follow their stated investment strategies; asset valuation issues (such as the staff’s recent case against the independent directors of a mutual fund complex for alleged issues with their oversight of the firm’s valuation practices); adviser fee arrangements (referring to a recent case against a firm for allegedly approving payments to a sub-adviser that did no work); conflicts of interest (akin to a case against a fund complex that allegedly mismanaged one fund to benefit another); and oversight and compliance failures (such as a recent case against a large fund complex for its alleged control failures concerning the use of leverage).” (Morrison & Foerster)

4. Mortgage-backed securities fraud:

“Structured and New Products Unit Assistant Director Laura Metcalfe lauded the work of the Residential Mortgage-Backed Securities Working Group of the interagency Financial Fraud Enforcement Task Force, which is co-chaired by the SEC’s Director of Enforcement, the New York Attorney General, representatives from the Criminal and Civil Divisions of the Department of Justice, and the U.S. Attorney for the District of Colorado. She said that the coordination enabled by the Task Force has strengthened joint enforcement efforts in the mortgage-backed securities area, and discussed in particular the SEC’s recent cases brought against two large investment banks.” (King & Spalding)

5. Trading technology:

“Commissioner Luis Aguilar advocated for more robust market oversight by the SEC. Aguilar said the increasing number of trading exchanges, increased daily trading volume, and increasing reliance on high-speed, fully automatic trading has created more risk and higher risk of loss for investors. These factors will lead to unacceptable market failures, which will erode investor confidence and the price integrity of capital markets, he said.” (Miller Canfield)

The updates:

Related reading:

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