SEC Chairman Mary Jo White, true to her prosecutor roots, is pushing for more accountability in enforcement settlements, part of her confirmation pledge to make enforcement “bold and unrelenting” on her watch.
A clear signal of that toughness came July 19, when the Securities and Exchange Commission charged Steven A. Cohen, founder and CEO of S.A.C. Capital Advisors LP, with failure to supervise two senior employees and stop them from conducting insider trading within S.A.C. affiliated hedge fund managers.
Another shock wave was felt that week when SEC commissioners rejected a staff-proposed settlement with New York-based hedge fund manager Harbinger Capital Partners and its founder, Philip A. Falcone.
Private fund managers are getting the message. “The sense is that they are going for a different approach to hold people accountable,” said Richard Heller, a partner with law firm Thompson Hine LLP in New York and chair of the Hedge Fund Association's regulatory and government advisory board. “I think the agency is going to try to be more aggressive. It's a much stronger enforcement group, and (Ms. White) has got more of a prosecutorial perspective,” said Mr. Heller.
“In 25 years, I have never seen a regulatory or enforcement environment like this.”
Ms. White, who served as U.S. attorney for the Southern District of New York before becoming a partner at Deveboise & Plimpton, signaled a less accommodating approach in remarks at an industry conference in June, saying the SEC will push for admissions of guilt in particularly egregious cases. While most will still be resolved on a “no admit, no deny” basis, sources said that Ms. White told attendees, “we'll be scrutinizing this.”
The co-directors of the SEC enforcement division, Andrew Ceresney and George Canellos, both former criminal prosecutors as well, underscored that shift in a June internal memo spelling out three criteria for when admissions of guilt might be sought: misconduct that harmed large numbers of investors or posed potential market risk; egregious intentional misconduct, and obstruction during SEC investigations.
Sen. Elizabeth Warren, D-Mass. — a member of the Senate Committee on Banking, Housing, and Urban Affairs which oversees the SEC and an outspoken critic of federal regulators' proclivity to settle instead of litigate — welcomes the change. “I am very pleased that Chairman White is taking a hard look at the SEC's enforcement policies and moving in a better direction,” she said in an e-mailed response to request for comment. “We need to make sure that large financial institutions are held accountable when they break the law and that the penalties are tough enough to deter future violations.”