U.S. Securities and Exchange Commission Chairman Mary Jo White picked fights with two billionaire hedge-fund managers this week, the strongest signs yet that she plans to run the “bold and unrelenting” enforcement program she promised.
Under her leadership, the commission voted to seek sanctions against Steven A. Cohen, the founder of SAC Capital Advisers LP, who had so far escaped direct implication in a sprawling insider-trading case involving his employees. She also rejected a proposed $18 million settlement with Harbinger Capital Partners LLC founder Philip Falcone because it wasn’t stringent enough.
The actions signal that White may be more willing than her predecessors to approve cases that could test the litigation prowess of the agency, which has become better known for reaching settlements than taking cases to trial. Cohen has said he will fight the administrative claims; Falcone has been contesting the SEC’s lawsuit for more than a year.
“This makes plain that Mary Jo White is taking an aggressive approach in going after high-profile matters,” said Steve Crimmins, a former SEC attorney who is now a partner at law firm K&L Gates LLP. “It shows that White and her team will not be afraid to take tough matters into litigation.”
SEC investigators claimed Cohen ignored red flags that two of his employees who are facing criminal insider trading charges were illegally using confidential information to make trades. The agency is seeking to bar Cohen from managing investor money.
Falcone, who once ran one of the biggest hedge funds in the industry, was sued by the SEC in June 2012 over claims he improperly borrowed $113 million from his fund to pay his taxes and of manipulating a stock price. In May, Falcone and SEC litigators agreed to a $18 million sanction and two-year bar from the industry; Harbinger revealed the agreement in a public filing before the commission had voted to approve it.
After reviewing the terms, White and the two Democratic commissioners, Luis Aguilar and Elisse Walter, rejected it. They questioned why the deal didn’t bar Falcone from serving as an officer or director of a public company. They also objected to the lack of an injunction -- an order not to violate securities laws -- that is characteristic of most SEC settlements and can be used as a basis for future sanctions if the person doesn’t comply with the agreement, according to two people knowledge of the matter.
In nominating White, President Barack Obama highlighted her reputation as a brass-knuckled prosecutor with experience bringing terrorists and mobsters to justice.
“You don’t want to mess with Mary Jo,” Obama said as he introduced her at the White House.
About two months after being sworn in, White announced the agency would depart from a decades-old practice of settling cases without requiring defendants to admit to wrongdoing.
“This shows Mary Jo White’s tenure as SEC Chairman will be a particularly active time for the enforcement division,” Crimmins said.