The U.S. Securities and Exchange Commission plans to issue more subpoenas and give people more incentives to cooperate with investigations as it works to tighten oversight of financial markets.
Speaking in New York, Robert Khuzami, the director of the SEC's enforcement division, said the changes will help the regulator as it focuses on cases involving the greatest and most immediate harm and on cases that send an out-sized message of deterrence.
Khuzami, a former federal prosecutor, is presiding over a division much criticized by lawmakers for missing Bernard Madoff's $65 billion Ponzi scheme and for not doing enough to protect investors during the financial crisis.
The changes call for SEC staff to now generally have power to issue subpoenas by getting approval only from their supervisors, not the full Commission.
If defense counsel resist the voluntary production of documents or witnesses or fail to be complete and timely in responses or engage in dilatory tactics, there will very likely be a subpoena on your desk the next morning, Khuzami said.
Other changes include plans to seek authority to submit more immunity requests to the Justice Department to encourage people to testify without fear of criminal prosecution.
The SEC also plans to create new groups to investigate cases involving asset management, foreign corrupt practices, market abuses, municipal securities and public pensions, and structured products. One group already exists to investigate subprime mortgage abuses.
Khuzami said the SEC also plans to create a new office to monitor incoming tips and complaints, and hire its first chief operating officer to boost efficiency and speed the reimbursement of funds to harmed investors.
Management will also be streamlined, and staff will need his permission for tolling agreements that give them more time to conduct investigations. He said these have become too common, causing delays that reduce the SEC's accountability.
DETERRENCE NOT ALWAYS HIGH-PROFILE
The SEC has had a number of high-profile enforcement cases in recent months, including penalties levied against Bank of America Corp and General Electric Co and insider trading charges brought against Angelo Mozilo, the former chief of mortgage lender Countrywide Financial Corp.
Speaking on the sidelines at the Association of the Bar of the City of New York, Khuzami said the emphasis on deterrence does not mean the SEC will overemphasize higher-profile cases at the expense of cases involving fewer investors or smaller amounts of money.
Deterrent impact is not tantamount to high-profile, but could focus on novel areas of potential wrongdoing, Khuzami said. It's not connected to big corporate cases necessarily.
He did say that the increased subpoena power may induce companies to be more aggressive in addressing wrongdoing to avoid the necessity of a subpoena. Some companies do not disclose SEC probes before subpoenas are actually issued.
While acknowledging a general sense of renewed urgency to aggressively root out wrongdoing, Khuzami downplayed the suggestion he feels pressure to do more.
I would take issue with the premise that I am under pressure to bring enforcement actions, he said in a question-and-answer session after his speech. No one has told me to bring more cases. What they have told me is we need to be vigorous advocates for investors.
On Wednesday, SEC Chairman Mary Schapiro told CNBC television that she would like by year end to see definitive rules governing short-selling, a practice blamed for feeding carnage in bank stocks. She also wants the regulator to work on many fraud cases with criminal authorities.
Before joining the SEC, Khuzami was a prosecutor for 11 years with the U.S. Attorney for the Southern District of New York, and was chief of that office's securities and commodities fraud task force for three years. He was subsequently general counsel for the Americas at Deutsche Bank AG.
(Reporting by Jonathan Stempel; Editing by Gary Hill)