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White Says Agency Will “Strive to be Everywhere”

SEC Chairman Mary Jo White reaffirmed October 9, 2013, that on her watch, the agency will have an increased focus on all areas of enforcement.

Speaking at the Securities Enforcement Forum in Washington, White referenced her history as a U.S. attorney in emphasizing how the agency will “strive to be everywhere to enforce our securities laws and to protect investors.”

“Investors do not want someone who ignores minor violations, and waits for the big one that brings media attention,” White said. “Instead, they want someone who understands that even the smallest infractions have victims, and that the smallest infractions are very often just the first step toward bigger ones down the road.”

The former U.S. attorney for the Southern District of New York went on to detail how the SEC was adopting a similar “broken windows” approach put in practice during her time in New York. That strategy says that when a broken window is fixed, a sign is sent to would-be wrongdoers that disorder will not be tolerated. White detailed how the agency is leveraging the strength of its exam program, creating a whistleblower program that encourages stepping forward, collaborating with regulatory colleagues, and enhancing its technology.

With respect to technology, White singled out the agency’s Advanced Bluesheet Analysis Program. The program automatically provides data on specific securities based on trades occurring in real time and identifies any suspicious activity before market-moving events.

“We plan to step up our use of this program, but we have already seen significant results on the insider trading front,” White said.

White discussed how the agency will monitor “gatekeepers,” such as investment company boards and auditors, who do an insufficient job of protecting investors. Specifically, she talked about “Operation Broken Gate,” which she described as “an initiative to identify auditors who neglect their duties and required auditing standards.” This initiative helped identify three auditors who were charged September 30 with violating securities laws and failing to comply with auditing standards. Two of the auditors have already received suspensions.

“You should expect more of these cases,” White said.

She also highlighted the agency’s new Microcap Fraud Task Force, which protects against excesses typically perpetrated against “less sophisticated investors.” It targets broker-dealers, transfer agents, attorneys, accountants, and other market participants who are generally key players when these sorts of schemes are carried out against investors.

Finally, White said that even though the agency will pursue all of these broken windows, it will have its sharpest focus on the biggest cases.

“It is critical that we continue to focus on the larger, tougher, and more complicated cases,” she said.

To that end, she discussed the efforts of the newly created Financial Reporting and Audit Task Force, which counts among its members attorneys and accountants who are developing new practices for identifying and uncovering accounting fraud. She also indirectly referenced the agency’s newfound focus on securing an admission of guilt.

“In all our cases, we will strive for settlements that have a deterrent effect, and where appropriate, the added measure of public accountability that an admission often brings,” she said.