SEC to offer immunity to financial insiders who give testimony
Thursday, January 14, 2010
The Securities and Exchange Commission on Wednesday announced a new policy to persuade insiders to cooperate with investigations, part of a broad restructuring of the agency's Enforcement Division, which has been criticized for moving too slowly in the past.
The new policy will offer witnesses immunity from prosecution if they provide important information to aid an SEC investigation. Such cooperation agreements, routinely used by the Justice Department in criminal probes, are one of the new tools the agency is using to combat financial crime. Statistics show that SEC investigators have been moving far more swiftly to bring cases in the past year.
Separately on Wednesday, the SEC's five commissioners voted to approve new measures aimed at reining in sophisticated computer systems used by Wall Street firms to trade vast numbers of shares at high speeds. The votes came in response to concerns that the technology could distort the market and give some firms an unfair advantage over other investors.
It's not clear, however, how soon any of these measures would go into effect; an early proposal last year to crack down on some forms of short selling, for example, has been delayed for months.
Enforcement director Robert Khuzami said he hopes the witness policy will encourage more corporate insiders to aid investigations. Cooperation agreements often promise reduced or dropped charges in exchange for information central to a case.
"There is no substitute for the insider's view into fraud and misconduct that only cooperating witnesses can provide," Khuzami said. "That type of evidence can expand our ability to conduct our investigations more swiftly, and to act quickly to file charges, freeze assets and protect investors."
In determining whether to grant leniency in exchange for cooperation, the SEC said, the agency will take into account several factors, including the assistance provided by a witness, the importance of the case and the "societal interest in ensuring the individual is held accountable."
The agency's investigative staff is also going through an overhaul. On Wednesday, the SEC announced the creation of new specialized units in its Enforcement Division. Thomas A. Sporkin, deputy chief of the Internet enforcement unit, will lead a new Office of Market Intelligence, which will analyze outside tips and complaints and coordinate work among multiple agency divisions.
Bruce Karpati, who oversees the agency's probes into hedge funds, and assistant enforcement director Robert B. Kaplan will run a unit focused on investment advisers, investment companies, hedge funds and private-equity funds. Another assistant director, Kenneth R. Lench, will focus on derivatives and other complex financial products. Associate director Cheryl J. Scarboro will oversee probes into overseas bribery by U.S. companies. Daniel M. Hawke, who currently heads the Philadelphia office, will oversee probes of market abuses and schemes. And Elaine C. Greeberg, a top official in the Philadelphia office, will lead probes involving municipal securities and public pensions.
Separately, the SEC launched a review of how technology has changed financial markets and solicited public comment on a range of issues, such as high-frequency trading and private markets that do not post trades publicly. It also proposed banning brokers from giving clients unregulated access to stock exchanges, which accounts for more than a third of all trading.
"Unfiltered access is similar to giving your car keys to a friend who doesn't have a license and letting him drive unaccompanied," said SEC Chairman Mary L. Schapiro.