Today I’m blogging from Securities Enforcement Forum 2014, Bruce Carton’s excellent one-day conference, this year being held at the Four Seasons hotel in Washington, D.C. The posts will be fairly raw, and certainly not verbatim accounts of what is being said.
This post covers Commissioner Michael Piwowar’s morning keynote speech. He started by noting that he’s one of only three economics Ph.Ds to serve as a commissioner at the SEC. He also pointed out the Takings Clause of the Constitution, which should give you an idea of his perspective on securities regulation. Also, did you know that the Code of Federal Regulations has grown from two volumes to three? If every rule is a priority, then no rule is a priority. Commissioner Piwowar thinks that a “broken windows” approach to securities enforcement does not necessarily work when applied to all regulations and entities the SEC is charged with overseeing.
He gets the requirements of the Administrative Procedures Act can be cumbersome and frustrating, but says due process requires their application. Also, raw numbers for SEC enforcement actions are not good measures for Enforcement Division effectiveness. You wouldn’t measure a police officer’s effectiveness by counting up the number of speeding tickets he issued. He notes that because of general diversification practices, a dishonest broker or adviser could be more damaging to a particular investor than a dishonest CFO.
The Commission has not held a summit devoted to elderly investors in a long time, and should focus on that area. Individuals commit violations and should be charged as such. Sometimes entities may settle cases just to resolve them.
Commissioner Piwowar also got into the SEC’s treatment of corporate penalties and the notion, also held by Commissioner Gallagher, that investors should not be punished for acts committed by corporate officers and directors. In particular, many SEC staff are recommending corporate penalties without reference to the factors laid out in the Commission’s 2006 statement on those penalties. Piwowar thinks those omissions are a failure that could expose the SEC as acting in a misleading way.
Finally, the SEC’s new ombudsman mandated by Dodd-Frank. Piwowar suspects many issues for the ombudsman will relate to whistleblower tips, but thinks her jurisdiction will grow. It is not unusual for government agencies and private companies have such a person. An ombudsman with authority to examine the SEC’s workings below the IG level could be a useful addition.
