SEC Strategy Targets Minor Offenders, Too

“One of our goals is to see that the SEC’s enforcement program is—and is perceived to be—everywhere, pursuing all types of violations of our federal securities laws, big and small,” White said in a speech at the Securities Enforcement Forum in Washington.

“Investors in our markets want to know that there is a strong cop on the beat—not just someone sitting in the station house waiting for a call but patrolling the streets and checking on things,” White said.

That philosophy will translate to a policing approach targeting not just major securities fraudsters but those committing more minor violations, as well. White likened the approach to that adopted by former New York City Mayor Rudy Giuliani, whom she worked with while serving as the U.S. Attorney for the Southern District of New York.

“They essentially declared that no infraction was too small to be uncovered and punished,” she said. “They wanted to avoid an environment of disorder that would encourage more serious crimes to flourish.”

Taking an approach that focuses only on major offenses is not an option, White continued. This is because, if minor violations are constantly overlooked or ignored, they will go on to feed the bigger violations and, more importantly, start to foster a culture where laws are “increasingly treated as toothless guidelines.”

“Retail investors, in particular, need to be protected from unscrupulous advisers and brokers, whatever their size and the size of the violations that victimize the investor,” White said. 

The bottom-up strategy translates to four concrete changes for SEC operations, she said.

First, the SEC is expanding its field of vision by leveraging the strength of its exam program, incentivizing individuals to step forward, collaborating with regulatory colleagues, and harnessing the power of new technological capabilities.

Second, the SEC will focus on deficient gatekeepers and pursue “those who should be serving as the neighborhood watch but who fail to do their jobs.”

Third, the SEC will continue to look for “broken windows” in the markets—a term White used to describe violations that frequently go unpunished and contribute to a perception of poor regulatory oversight—to avoid breeding an environment of indifference to SEC rules.

Finally, White said that the SEC will continue to prioritize the biggest cases—pursuing and punishing major offenses by significant and high-profile market participants “to send a strong message of deterrence to the industry” and boost the confidence of investors.

A full copy of White’s October 9 address can be found here.