Here’s how the SEC is preparing for life after financial crisis

Andrew Ceresney. the sole enforcement chief at the Securities and Exchange Commission. (U.S. Securities and Exchange Commission)
Andrew Ceresney. the sole enforcement chief at the Securities and Exchange Commission. (U.S. Securities and Exchange Commission)

After sharing the post for nearly a year, Andrew Ceresney is now the sole enforcement chief at the Securities and Exchange Commission, overseeing more than 1,200 employees in the agency's largest and most high-profile division.

It's not Ceresney's first stint in the public sector. Early in his legal career, he was a federal prosecutor in Manhattan, working for then-U.S. Attorney Mary Jo White. When White left for private practice, Ceresney joined her at Debevoise & Plimpton in New York.

And when President Obama tapped White to lead the SEC, Ceresney followed again to lead the enforcement division with George Canellos, who left the agency this month.

As head of the division, Ceresney sets the agenda for his unit as it pivots away from handling financial crisis cases, and strives to meet White's promise of a "bold and unrelenting" crackdown on Wall Street abuses. He gets first crack at deciding which cases to bring, when to settle and under what terms.

Here's what Ceresney, 42, told us about his thinking on the enforcement front:

Are the cases from the 2008 financial crisis behind the agency?

We have a few we're finishing up. But for the most part, we're done. We have a five-year statute of limitations. This is an area where we have been incredibly successful bringing cases against 169 individuals and entities.

 Critics often complain that the SEC has not gone after the Wall Street tycoons who contributed to the financial meltdown, only their lower level employees, including Fabrice Tourre, formerly of Goldman Sachs. Why hasn't the SEC brought cases against big-name bank executives?

I don't think that is a fair criticism. We have brought financial crisis cases against 70 CEOs, CFOs and other senior executives of entities. That is a great record of accomplishment. These include cases against, for example, Angelo Mozilo, the former CEO of Countrywide, and Gary Crittenden, the former CFO of Citi. Although Tourre was not a senior executive, he played the key role in that transaction and engaged in fraud as the jury found.

 Federal rules require you to recuse yourself for a year from SEC matters involving your former Debevoise clients, such as JPMorgan and Deloitte Touche. Has that restricted you in your job in any way?

There are cases I have been recused from and George handled those, so that worked out very well. My recusals will be up in three months and it will be no issue then.

 A major policy initiative adopted under your watch involved demanding admissions of wrongdoing in certain matters. Previously, the SEC routinely allowed defendants to neither admit nor deny wrongdoing, a practice harshly criticized by some judges. Did the criticism prompt the change?

No. Mary Jo was the moving force behind it, but in consultation with George and me and the other commissioners. It really came out of our perspective as former criminal prosecutors. In the criminal realm, admissions are common in every case, so we view things from that prism. Applying that prism to the SEC doesn't mean you get rid of the no-admit-no-deny policy. But it means there are cases where admissions are appropriate.

 What criteria do you consider when deciding whether to demand admissions?

We've identified a number of things: harm to large numbers of investors, significant risk to investors and/or the markets, and situations where admissions would put investors on notice in future dealings with the defendant in a way that's unambiguous - or convey an unambiguous message to the market about the conduct. We've gotten admissions in three cases so far involving (hedge fund billionaire Philip) Falcone, JPMorgan, and (broker dealer) Convergex.

 Don't most SEC cases meet that criteria?

There are a number that do. But you also have to consider in each case if there's a compelling need for accountability, and you have to consider issues like litigation risk. If you're going to ask for admissions, you have to be ready to try that case if the party won't agree, so you have to be confident in your evidence. There are other considerations, such as whether it's a case you want to devote resources to litigating.

 Speaking of resources, the SEC chairman has said she expects the demand for admissions will lead to more trials. Can the SEC handle more given that it operates under a tight budget?

It will take more resources to try these cases, but I think we're equipped for it. I'm confident we have a very strong trial unit (with 115 attorneys) and they will bring to bear their talents to put forth the best case we can in every situation.

More trials will probably lead to more losses. When devising an overall enforcement strategy, have you considered the reputational damage that the agency might suffer as a result?

If we're not losing trials, we're not being aggressive enough. It's obviously important that we win to ensure that we have credibility. But just because we lose a case it doesn't mean we shouldn't have brought the case or that we didn't try it well.

Sometimes it just gets down to the unique facts of the matter. I think sophisticated people understand that.

In recent months, the Justice Department has negotiated a record $13 billion settlement with JP Morgan and another nearly $2 billion deal involving Bernard Madoff's Ponzi scheme. By contrast, the SEC's settlements look so small, including a $300 million settlement with JPMorgan in 2012. Do you feel the agency missed out on opportunities along the way?

I don't agree that our penalties are small. I think we have used our penalty authority aggressively. ... One things to keep in mind is that our penalty authority is limited. We're limited to obtaining pecuniary gain, the amount the person made through their conduct. We can't ask for investor losses. There are also maximum penalties per violation, and sometimes there aren't a lot of violations. We've asked Congress for additional penalty authority so we can get back investor losses, and that would make a big difference.

The number of enforcement cases brought the SEC has dropped about 6 percent in fiscal 2013 from the previous year, and about the same from the prior year. Why is that?

Numbers don't tell the story, frankly. What tells the story is the quality of our cases. But I think part of the reason for that slight drop is the financial crisis being over. I think every year is going to be different. You can't predict.

In what areas is the SEC boosting its enforcement efforts?

In the summer, we created a Financial Reporting and Audit Task Force to focus on detecting misconduct involving accounting and financial reporting disclosures, as well as audit failures. We also have a task force that's focusing on potential fraud involving microcap stocks, and another that's looking into the practices in the broker dealer community.

 

Dina ElBoghdady covers housing policy for The Washington Post.
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