SEC Asks for Congressional Authority to Seek Civil Penalties for Investment Fraud
The Securities and Exchange Commission (SEC) is hoping Congress will increase its authority to seek civil penalties for investment fraud.
The Agency's Director of Enforcement, Robert Khuzami, testified before the Senate Banking Subcommittee on Securities and said the SEC would like to have increased authority to impose penalties on those who help defendants in violation of the Investment Advisers Act. Khuzami also told the Senate the agency needs the authority to subpoena people in civil cases across the country. This would save the agency travel expenses as well as staff resources, because duplicate depositions would be avoided. Khuzami also pointed out several areas in the enforcement division that need more resources. The agency would benefit, he said, from hiring more trial lawyers, as well as chief operating officers to manage the division. He also asked for more resources in the form of enhanced paralegal and administrative support, as well as better technological resources.
Khuzami spoke to the panel in response to a report by the Government Accountability Office, which made suggestions for enhancements in SEC operations. The report analyzed agency operations and found there was a delay in cases and lowered settlement amounts in investment fraud cases, because of outdated penalty policies. Under one of these policies agency enforcement staff was forced to obtain approval on a settlement before discussing penalties with public companies. That policy was revoked by SEC Chairman Mary Schapiro.
The agency has also suffered from a shortage of staffing and resources, resulting in a backlog of cases. Since the Bernard Madoff investment fraud was exposed last year, the SEC has come under increased pressure to enhance its operations. The appointment of Khuzami was one of the first moves Schapiro made to strengthen the division.
Attempts at SEC Improvement
Last month we discussed other moves that could strengthen the SEC and fine tune its ability to crack down on investment fraud much faster. These include the proposed formation of specialized teams to deal with specific frauds. The SEC is also proposing increased cooperation with criminal authorities and enhancing the management model currently in place at the agency.
It may be a while before these proposed measures actually move toward becoming implemented at the agency, but securities attorneys, who have been critical of the agency's failures to crack down on investment fraud, believe any enhancements are worth the wait.
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