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An Era of Accountability

November 25, 2013
broken windows

Photo from Wikipedia Commons. Some rights reserved.

“Cop on the beat,” “broken windows,” and bringing “the swagger back.” These are some of the more colorful catchphrases SEC Chairman Mary Jo White and Co-Enforcement Director Andrew Ceresney have used to describe the Commission’s new focus on enforcement.

While it would be easy to dismiss such language as flashy showmanship, substantive shifts in enforcement policy can be discerned from these remarks.

One such shift is the SEC’s insistence on accountability. In her now infamous “Deploying the Full Enforcement Arsenal”  speech, White discussed her prosecutorial experience and her development of the first corporate deferred prosecution agreement (“DPA”). Shortly thereafter, the SEC announced its first use of a DPA with an individual.

According to Associate Enforcement Director Scott Freistad, the DPA rewarded cooperation while also requiring accountability. In a November 14th speech White explained trials are important because they make both the plaintiff and defendant accountable. All litigants must meet their burden of proof and the public has the opportunity to hear the facts. But a regulatory “no admit/no deny” settlement lacks the necessary measure of accountability which may sometimes be required.  White therefore changed the SEC’s settlement policy “because I believe that in certain cases, more may be required for a resolution to achieve public accountability and to be, and viewed to be, a sufficient punishment to send a strong message of deterrence. Not a trial, but some extra measure of public accountability.”

Even Commissioner Daniel Gallagher has noted the need for accountability. Although Gallagher expressed dismay with the aggressive language used by his fellow senior officials, he too believes that the agency “should take every opportunity to bring regulatory cases for violations of even the most technical rules.” As part of that effort, he called for an increased use of the failure-to-supervise theory for non-scienter based fraud cases.

The SEC’s era of accountability has begun.

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