May 16, 2018

The Securities and Exchange Commission and the Division of Enforcement

Financial Services Committee - Sarah (Rozier) Flaim, Keeley Christensen

WASHINGTON – The Subcommittee on Capital Markets, Securities, and Investments held a hearing today to oversee the Securities and Exchange Commission’s (SEC) Division of Enforcement (Division). The hearing examined the mission, operation, and current initiatives and activities of the Division. The Subcommittee also observed how the Division’s agenda is consistent with the SEC’s Congressionally-mandated, three-part mission to protect investors, maintain fair, orderly, and efficient markets, and to facilitate capital formation.

“We should not evaluate the true effectiveness of a regulatory agency or its enforcement program solely based on how many headlines it can generate,” said Subcommittee Chairman Bill Huizenga (R-MI). “I believe that the misguided ‘broken windows’ approach to enforcement utilized by the SEC under the Obama Administration was successful at boosting statistics, however it lacked meaningful investor protections. The SEC should continue to refocus its enforcement priorities on the core principles it has identified, especially those that strengthen protections for Main Street investors and increase accountability.”

Key Takeaways

  • The priorities of the SEC Division of Enforcement should be grounded in protecting investors and deterring wrongdoing.
  • The effectiveness of the SEC’s enforcement program should not be evaluated solely based on how many headlines it can generate or by metrics focused simply on the number of actions brought and penalties levied.
  • When considering penalties, the SEC must consider innocent shareholders and strike the right balance between deterring wrongdoing and protecting shareholders who often are responsible for paying large civil penalties for violations they did not commit.

Topline Quotes from Witnesses

“[v]igorous enforcement efforts across our markets that are aimed at protecting Main Street investors have been—and will remain—a priority for the Enforcement Division. And . . . as we enhance our focus on protecting retail investors, we will continue to actively pursue cases against large corporations, financial institutions, and other market participants who violate our federal securities laws.” – Stephanie Avakian and Steven Peiken, Co-Directors, Division of Enforcement, Securities and Exchange Commission


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