Wednesday, September 12, 2007

The SEC Sharpens its Investigative Focus

While everyone has issues with the SEC's policy decisions at one time or another, I believe most securities defense attorneys agree that the SEC Staff does a good job at its job....given its very high turnover and budget restraints.

However, a recurring criticism of the SEC has a whole is that while it is very good at closing the barn doors after the horses are long gone, it is not so good at understanding that the doors are unlocked and wide open.

The Commissioners and senior staff are undoubtedly aware of this. Under budget and under staffed, we can't expect the Staff to conduct enough audits at broker-dealers, public companies, mutual funds, investment advisers, and other registrants, to have a meaningful impact on discovering on going fraud. (Oh, and they want to add hedge funds to the already massive list?).

However, the SEC is focusing on enforcement. The SEC has announced that it has created four special "working groups" to sharpen its enforcement process and bring cases of suspected fraud more quickly and efficiently. The four groups are focuing on subprime issues, hedge funds, insider trading and option back-dating.

I am not quite sure what an investigative focus on hedge funds represents, but we have long suspected an increased focus on hedge funds through back door methods since the SEC's disasterous attempt to regulate hedge fund managers. Insider trading has always been a focus of the Staff, and one would have thought that all of the option backdating cases that could be brought have already been brought.

But subprime? There is an issue that needs investigation, and which will only increase in focus, as investors realize the drubbing they have taken in subprime related investments and start complaining to the regulators and filing arbitrations.
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