Risk & Compliance

SEC Settlements Rise 16% in Q1

In the first few months of the new chairman Mary Schapiro's reign, the commission reaches 182 accords. But how much influence did she have?
Sarah JohnsonApril 16, 2009

The Securities and Exchange Commission made 182 new settlements in the first three months of 2009, a 16% increase compared to the same period last year, according to NERA Economic Consulting.

The SEC had made 123 settlements in the fourth quarter of 2008, during the waning weeks of Christopher Cox’s three-year tenure as chairman. In the first quarter of 2008, the regulator reached 157 settlements.

To be sure, it’s too early to draw conclusions on whether the surge in settlements reflects a trend and could be related to Cox’s successor, Mary Schapiro, implementing new enforcement policies since she took over as chairman at the end of January. After all, the majority of the cases ended by settlement agreements in Q1 likely began long before she started, explains Elaine Buckberg, senior vice president at NERA.

Indeed, whether Schapiro has the enforcement mettle she promised senators during her January confirmation hearing will be tested over the rest of the year as the effects of the changes she has made to the enforcement division have time to bear out. Many senators at the time expressed concern that Schapiro, the former head of the Financial Industry Regulatory Authority, would not be a “robust” enforcer.

Soon after she took over, Schapiro overturned Cox’s policy of requiring the SEC staff to get the commission’s approval for levying financial penalties against companies. She also made it easier for the staff to launch formal investigations of corporations. Previously, the staff needed to get the attention of all five commissioners before embarking on a formal investigation, which gives the staff the power to issue subpoenas to potential witnesses (as opposed to the beginning, “informal” stages of an investigation, when no subpoenas are issued). Both of these policies under Cox were perceived to have slowed down the SEC’s investigations overall.

Most likely Schapiro’s reversals of Cox’s policies have “reinvigorated” the enforcement staff, Buckberg notes, but the effects are not likely evident in the same quarter the changes were implemented.

Also likely to keep the enforcement staff motivated: more help and money. President Obama has requested a 13% increase for the SEC’s budget for fiscal-year 2010, and lawmakers have also expressed their intention to help boost the commission’s enforcement division.

The SEC has been under intense pressure amid the financial crisis and missed opportunities to catch high-profile frauds before they caused widespread damage, such as Bernard Madoff’s Ponzi-style scheme. In addition, weak economic times tend to bring out misconduct, notes Laurence Weiss, a partner at law firm Hogan & Hartson. “The SEC is under enormous pressure to increase enforcement,” he says. “It’s a bit early to know exactly where that pressure will manifest itself, but we can expect the SEC to increase enforcement activity.”

The SEC’s $200 million settlement with UBS AG over allegations that the wealth-management firm enabled tax evasion was the biggest made in Q1, according to NERA’s report. The came settlements with Halliburton ($177 million), E-Trade Capital Markets ($34 million), One Universe Online ($26.3 million), and SG Americas Securities ($8.4 million).


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