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Vedder Thinking | Articles Highlights from SEC Speaks 2013


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The United States Securities and Exchange Commission (the SEC or the Commission) held its annual SEC Speaks conference in Washington, DC on February 22–23, 2013, recapping the prior year and emphasizing SEC priorities for the coming year. 

Key Commissioner Remarks

Chairman Elisse Walter began the conference by reiterating the Commission’s goals of maximizing stability and minimizing systemic risk through prudential regulation. Chairman Walter specifically emphasized the SEC’s increased focus on investor protection and the implementation of a regulatory platform that supports investor confidence. In that regard, Chairman Walter noted the “unique and uniquely important role” the SEC plays in the American economy, recognizing that investors who fuel business will not take a risk if they are concerned about fraud and market manipulation. 

Commissioner Luis Aguilar spoke about the need to protect investors through “robust market oversight.” Commissioner Aguilar specifically noted that the SEC’s role as a capital market regulator has never been more important, and his remarks focused on the present need to address the many failings brought to light by the financial crises. Commissioner Aguilar indicated market failures such as the Flash Crash of May 2010 and the Facebook IPO of May 2012 are not acceptable, and the Commission must take responsibility to propose and implement solutions. Commissioner Aguilar offered two specific suggestions—namely, a “kill-switch” designed to immediately halt trading if certain anomalies are detected, and enhanced simulation and testing of business continuity plans (highlighting the failures to employ such preparedness measures in the wake of Hurricane Sandy).

Commissioner Troy Paredes opened his remarks by emphasizing disclosure as the cornerstone of federal securities regulation. Commissioner Paredes indicated, however, more is not necessarily better, noting his concern with information overload (and the added complexities and requirements mandated by Dodd-Frank). Commissioner Paredes suggested restraint with additional disclosure regulations, noting too much disclosure can be counterproductive, resulting in less transparency and uninformed decision making. Specifically, Commissioner Paredes proposed that Congress and the Commission should not add to the problem by increasing what companies are required to disclose but, rather, should focus on simple, transparent and accessible disclosure of material information. In this spirit, Commissioner Paredes called for “top-to-bottom” review of the disclosure regime. 

Commissioner Daniel Gallagher highlighted concerns with the “paradigm” of Dodd-Frank, including the Act’s approximately 400 mandates. Commissioner Gallagher opened his remarks by highlighting the history and formation of the SEC, which began as an independent, bipartisan entity with specialized expertise. Against this backdrop, Commissioner Gallagher cautioned the SEC must not take a secondary role on legislation and rule-making within its regulatory authority. Commissioner Gallagher also spoke about the need to “preserve the long-standing agency model that eschews a one-size-fits-all mentality.” According to Commissioner Gallagher, the most immediate threat to the Commission’s independence is the Financial Stability Oversight Council, established by Dodd-Frank, which he noted is particularly susceptible to political influence.

Division of Enforcement:  Continues Aggressive Approach

Speakers from the Division of Enforcement, including Acting Director George Canellos, underscored the Commission’s focus on gatekeepers (including accountants, board members and attorneys) and the need for creative methods to detect market manipulators.

David Bergers, Acting Deputy Director, Division of Enforcement, and Daniel Hawke, Regional Director, Philadelphia Regional Office and Chief, Market Abuse Unit, each discussed the recently formed Enforcement Advisory Committee, whose objectives include evaluating new priorities, techniques and technologies, as well as assisting the Commission with dedicating its limited resources effectively.  Specifically, Mr. Bergers highlighted some examples by which the Commission was improving the ways it investigates and litigates cases, focusing on predictive accounting quality models that assist the Commission in identifying potential areas of risk. Mr. Hawke indicated that the Division of Enforcement was paying close attention to the capital market structure, including the proliferation of trading venues and off-exchange trading, in order to permit the Commission to conduct a more effective investigation. 

Jane Norberg, Deputy Director, Office of the Whistleblower, reported on the successful launch of the Whistleblower program, including the first award paid to an individual (30 percent of the monetary sanctions). Ms. Norberg highlighted the 3,001 tips received during 2012, which stemmed from voluntary tips in all fifty (50) states and forty-nine (49) foreign countries. Ms. Norberg stated that the Office of the Whistleblower is focused on specific, timely and credible information that causes the SEC to open or reopen an action.  Ms. Norberg also reminded the audience of the anti-retaliation provisions contained within Dodd-Frank, and admonished corporations on the use of agreements with employees that purport to waive statutory protections afforded to whistleblowers.

Eric Bustillo, Regional Director, Miami Regional Office, commented on the SEC’s Cooperation Program. Mr. Bustillo noted the fifty-one (51) cooperation agreements entered into by the Commission since the program’s inception in 2010, which were used by every office in the Enforcement Division. Mr. Bustillo further commented that the Cooperation Program dramatically increases the Commission’s ability to detect fraud and prosecute misconduct.  Moreover, Mr. Bustillo addressed the SEC’s nonprosecution agreement with Carter’s (in 2011) and the deferred prosecution agreements with Tenaris (also in 2011) and the Amish Helping Fund (in 2012). Mr. Bustillo detailed the SEC’s reasons behind entering into these agreements—emphasizing the benefits for corporations and individuals—in an effort to encourage cooperation with the staff.

Joseph Brenner, Chief Counsel, concentrated his remarks on the impact of the Supreme Court’s 2011 decision in Janus Capital Group (Janus) and the Commission’s use of Section 304(a) of Sarbanes-Oxley (SOX 304). Mr. Brenner reported that the Janus decision has had only a “modest impact” on the Commission’s ability to bring enforcement actions because, among other things, the decision did not materially impact the SEC’s ability to charge corporations and individuals with secondary liability. Mr. Brenner also emphasized that SOX 304 enforcement was “alive and well,” and specifically referenced the recent, “favorable” decision in the Baker case, in which the District Court agreed with the Commission and affirmed the use of SOX 304 against many challenges (including Constitutional challenges). Mr. Brenner also reported that approximately fifty (50) SOX 304 cases have been brought to date, including twelve (12) during 2012 and three (3) this year; approximately fifteen percent (15%) of SOX 304 cases have been filed against CEOs or CFOs without any allegations that these executives committed wrongdoing.

Matthew Martens, Chief Litigation Counsel, discussed the SEC’s well-publicized case involving Citigroup, in which the District Court refused to grant a proposed settlement because it did not contain any factual admissions on the part of the defendant. Mr. Martens noted the SEC recently argued the decision before the Second Circuit Court of Appeals. Mr. Martens also reported the SEC’s trial record in 2012—twenty-three (23) wins against one (1) defeat—and addressed some active cases involving the interpretation of a transaction’s “domicile,” and what constitutes “in connection with” a securities transaction.

Sanjay Wadhwa, Senior Associate Regional Director, New York Regional Office, discussed the Commission’s focus on insider trading cases.  Mr. Wadhwa noted that, since 2009, the SEC filed approximately 175 enforcement actions against 425 defendants alleging approximately $900 million in illicit gains. Mr. Wadhwa highlighted two high-profile cases brought by the Commission last year—one against Mathew Martoma, a hedge fund manager, for insider trading involving approximately $276 million in illicit gains, and one against Bill Wong from Tiger Asia Funds involving approximately $17 million in illicit gains.  The case against Wong was settled for $44 million.  Mr. Wadhwa indicated that, in each of these cases, the SEC worked closely with the FBI and the U.S. Attorney’s Office, using traditional investigative techniques without the benefit of wire or phone taps.  Mr. Wadhwa also addressed the Commission’s pending investigation into options trading involving foreign accounts in connection with the H.J. Heinz & Co. sale and noted that the SEC would likely pursue other similar investigations into foreign accounts in the future.     

Andrew Calamari, Regional Director, New York Regional Office, highlighted three types of cases the SEC is continuing to pursue with respect to accounting and financial disclosures.  These include cross-border cases, gatekeeper cases (such as those involving the conduct of auditors or directors), and bank cases concerning the valuation of loans and other instruments.  In discussing recent cases involving banks, Mr. Calamari noted that the SEC was focusing on potential areas for valuation fraud, such as relying on “stale” collateral appraisals or disclosing generic warnings about market downturn despite the existence of significant write-downs by banks.

Charles Wright, Counsel to the Chief Accountant for Enforcement, discussed recent SEC auditing enforcement trends, including the SEC’s work on independence actions where either the auditor’s qualifications or the process used by the auditors was at issue. Mr. Wright also underscored that the SEC is continuing to pursue actions involving foreign audits, and such actions are not limited to China, citing the SEC’s recent enforcement proceeding against Deloitte & Touche (South Africa) as an example.

Bruce Karpati, Chief, Asset Management Unit (AMU), and Julie Riewe, Deputy Chief, AMU, gave an update on their unit’s activities this year. Mr. Karpati discussed the unit’s “risk-oriented approach” to detecting fraud and noted the SEC is closely examining cases involving improper valuation, fee arrangements, conflicts of interest and board oversight in the mutual fund space. Looking forward, Mr. Karpati explained that the AMU will focus on the oversight of advisers and boards regarding fee arrangements, the distribution of fees, due diligence conducted with regard to subadvisers and the money market fund space. Mr. Karpati also noted that the SEC was on the lookout to determine whether mutual funds have appropriate oversight in terms of the valuation methodology used by boards, particularly regarding the calculation of fees. Ms. Riewe anticipates increased enforcement activity by the AMU in the private equity space. In this regard, Ms. Riewe commented that the enforcement activity will likely center on the propriety or transparency of fees at private equity firms, conflicts of interest (such as self-dealing), and successor funds and their marketing efforts.

Kara Brockmeyer, Chief, Foreign Corrupt Practices Act (FCPA) unit, encouraged the use of the recently completed FCPA guidelines, jointly issued by the Commission and Department of Justice. As companies work on crafting appropriate FCPA compliance programs, Ms. Brockmeyer counseled against a “one-size-fits-all” approach.  Rather, Ms. Brockmeyer suggested that a holistic approach, one where legal and compliance programs “intertwine” with internal controls, would likely be more successful in assisting corporations in detecting potential FCPA violations.  Ms. Brockmeyer also emphasized that effective self-policing generally results in self-reporting. 

Laura Metcalfe, Assistant Director, Structured and New Products Unit, discussed her unit’s focus on examining complex and structured markets, particularly in the residential mortgage-backed securities (RMBS) space.  Ms. Metcalfe stated that, over the past year, her unit has been very active in reviewing potential RMBS cases, with the goal of advancing investigations quickly and filing good cases—many of which involve material misstatements or lack of proper disclosures by financial institutions.  Ms. Metcalfe highlighted two of the unit’s cases from the past year filed against JPMorgan Chase and Credit Suisse, and which resulted in approximately $420 million in disgorgement and penalties from the two companies.

With the Commission’s emphasis on streamlining resources and enhancing technologies, as well as the heightened capabilities afforded by Dodd-Frank, 2013 will likely mark aggressive enforcement activity. As several speakers highlighted, this enforcement activity may center on  accounting and financial disclosures, asset management, insider trading, gatekeepers and FCPA and cross-border misconduct. 

Please contact your Vedder Price attorney, Thomas P. Cimino, Jr. at +1 (312) 609 7784 or Junaid A. Zubairi at +1 (312) 609 7720, to discuss these matters further.


Thomas P. Cimino, Jr.


Junaid A. Zubairi


Rachel T. Copenhaver


William W. Thorsness