SEC Enforcement Chief Sees Priority Shift From Crisis CasesJoshua Gallu
George Canellos, the U.S. Securities and Exchange Commission’s acting enforcement chief, said his unit is at an “inflection point” in redefining priorities previously focused on conduct related to the 2008 credit crisis.
Investigators are now looking at the conduct of gatekeepers such as accountants and board members, new and evolving market technologies, and activity in the private-equity industry in an environment of low interest rates, Canellos said today during a panel discussion at a securities law conference in Washington.
The SEC overhauled the enforcement division in 2010, creating specialized units to focus on areas such as structured products that helped fuel market turmoil in 2008 after the U.S. housing market collapsed. An enforcement advisory committee has been set up to evaluate new priorities, according to David Bergers, the enforcement division’s acting deputy director.
“We can’t remain static,” Bergers said in the discussion at the Practising Law Institute’s “SEC Speaks” event.
The advisory panel’s primary goal is to make it easier for SEC attorneys to investigate and litigate cases, Bergers said. The agency is more aggressively seeking to enforce subpoenas when companies delay requests for documents, he said.
The enforcement unit is working on a tool that can help predict accounting fraud by mining information in public filings and identifying outliers in discretionary accruals, according to Bergers.
Canellos said the division is examining use of so-called 21a reports that enable the SEC to lay out the findings of an investigation even if the agency isn’t able to file an enforcement action. Those reports are “vital” for the SEC to shape industry conduct, he said.
SEC officials also highlighted work on insider-trading cases, including an asset freeze filed Feb. 15 against unknown traders who reaped $1.7 million by purchasing H.J. Heinz Co. stock options before a $23 billion takeover of the ketchup maker was announced. The SEC got the asset freeze within two days of the trades.
Investigators will continue to monitor for well-timed bets ahead of merger and acquisition announcements, said Sanjay Wadhwa, a senior attorney in the SEC’s New York office.
“As the global M&A market rebounds and kicks into gear, I dare say you will see more of these actions coming out of the SEC,” said Wadhwa, who also spoke on the panel.