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SEC Chairman Schapiro Announces New Enforcement Procedures

Securities Litigation Update Michael H. Schaalman

In a speech on February 6, 2009, at the Practicing Law Institute's program "SEC Speaks in 2009," SEC Chairman Mary L. Schapiro announced the following new enforcement procedures:

  1. This week, the SEC will end the two-year "penalty pilot" program, which required Staff to obtain special Commission approval for any civil monetary penalties for public companies. According to Chairman Schapiro, this experiment "sent the wrong message," as it "introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed."
  2. The SEC will have a more rapid approval process for formal orders of investigation. Formal orders of investigation allow Staff to use subpoenas to compel testimony and document production. Requests for formal orders will now be determined by a single Commissioner acting as a duty officer or seriatim by the agency.
  3. The SEC will form an Investor Advisory Committee "to ensure that the Commission hears first hand about the issues most concerning to investors."

Chairman Schapiro further announced the following initiatives she considers to be priorities:

  • "Improving the quality of credit ratings by addressing the inherent conflicts of interest that credit rating agencies face as a result of their compensation models and limiting the impact of credit ratings on capital requirements of regulated financial institutions."
  • "Reducing systemic risk to investors and markets by promoting - and regulating appropriately - centralized clearinghouses for credit default swaps."
  • "Strengthening risk-based oversight of broker-dealers and investment advisers."
  • "Improving the quality of audits for nonpublic broker-dealers and promoting the safe and sound custody of customer assets by any broker-dealer or investment adviser."

The entire text of the speech can be found at: http://www.sec.gov/news/speech/2009/spch020609mls.htm.

In addition, the SEC announced on Monday, February 9, 2009 that Linda Chatman Thomsen will be leaving her position as Director of the Division of Enforcement. The press release announcing her departure can be found at: http://www.sec.gov/news/press/2009/2009-22.htm

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If you have any questions concerning this or other securities litigation and enforcement matters, please contact Michael Schaalman at 414-277-5325 / ms2@quarles.com, any member of the Quarles & Brady Securities litigation team or your Quarles & Brady LLP attorney.