SEC making a ‘subtle shift’ in its pursuit of individuals


Mary Jo White, chair of the Securities and Exchange Commission, is focusing the agency’s enforcement program on the pursuit of individuals, not just companies. (Nikki Kahn/The Washington Post)
September 26, 2013

Wall Street’s top cop said Thursday that her agency is sharpening its focus on individual wrongdoers and making a “subtle shift” in the way it pursues them.

Securities and Exchange Commission Chairman Mary Jo White said she has asked her enforcement staff to start probes, when possible, by first taking a hard look at the people suspected of misdeeds within a company, and not just the company itself.

“I want to be sure we are looking first at the individual conduct and working out to the entity, rather than starting with the entity as a whole and working in,” White said at a conference of the Council of Institutional Investors in Chicago. “It is a subtle shift, but one that could bring more individuals into enforcement cases.”

In the wake of the financial crisis, the SEC has repeatedly come under attack for failing to hold enough high-profile executives accountable for their roles in sinking the global economy. Since joining the agency in April, White has pledged to flex the SEC’s muscle, a message she reinforced Thursday.

The speech was one of the most thorough public statements White has made about the agency’s agenda under her watch, and it touched on several SEC priorities, including more robust monitoring of the financial markets and speedy implementation of the many regulations demanded by Congress in recent years.

But White’s most forceful statements were about the enforcement arena.

The former federal prosecutor said the agency should not shy away from tough cases, ignore smaller ones or cut off any legal avenues when it detects wrongdoing — even if that means bringing cases of negligence instead of more serious fraud charges.

“If we do not have the evidence to bring a case charging intentional wrongdoing, then bring the negligence case that does not require intent,” White said.

Although the SEC pursues only civil cases, and therefore cannot put executives behind bars, the agency should impose meaningful penalties on wrongdoers that make “companies and the industry sit up and take notice of what our expectations are,” White said.

Earlier this year, White announced that the agency would start demanding admissions of wrongdoing in certain types of cases — a major departure from a previous policy that routinely allowed defendants to settle cases without admitting or denying liability. White said Thursday that she expects the new approach to lead to more trials.

“We recognize that we may see more financial firms that say, ‘We’ll see you in court,’ ” she said. “But that will not deter us. The SEC has a well-established record of winning when we go to trial.”

Soon after White joined the SEC, the agency went after one of its most high-profile targets when it charged hedge-fund billionaire Steven A. Cohen with ignoring “red flags” indicating that two of his employees engaged in insider trading.

Last month, the SEC won a huge trial victory when it a federal jury found former Goldman Sachs executive Fabrice Tourre liable for duping investors about a shoddy mortgage deal, handing the SEC a major win in one of the few cases to emerge from the financial crisis.

However, some critics downplayed the victory, faulting the SEC for going after a mid-level trader instead of his higher-level Goldman bosses.

A similar complaint arose this month after JPMorgan Chase agreed to pay the SEC $200 million — one of the largest SEC penalties ever — as part of a broader $920 million settlement with federal regulators involving the bank’s handling of the disastrous “London Whale” trading losses. As part of the settlement, the bank admitted wrongdoing. But none of the bank’s senior managers were named in the SEC order.

Dina ElBoghdady covers housing policy for The Washington Post.
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