WASHINGTON — The Securities and Exchange Commission is taking several steps to enhance its enforcement activities, including giving senior officials subpoena power for at least a year and creating five national units to specialize in complex areas of securities law.
The five units include one that will focus on municipal securities and public pensions and four others that will focus on asset management, market abuse, structured and new products, and the Foreign Corrupt Practices Act, the SEC’s top enforcement official said Wednesday night.
“The market for municipal securities is huge, and there is every reason to believe that the size and importance of these markets will continue to grow, as the nation’s infrastructure needs increase and more and more investors seek safe investment opportunities,” Robert Khuzami, the director of the SEC’s enforcement division, told members of the New York City Bar Association.
“A number of areas appear ripe for scrutiny, including offering and disclosure issues, tax and arbitrage-driven activity, unfunded or underfunded liabilities, and 'pay-to-play’ schemes in which money managers and advisers pay kickbacks and give other favors in return for the right to sub-advise the funds,” he said.
Sources said yesterday that it is not clear who will head the muni and public pension unit. Currently, the SEC coordinates its municipal securities enforcement activities through a group led by officials in its Philadelphia office, including regional muni securities counsel Mark Zehner.
One SEC source said that the commission is still creating the new unit around a basic framework that would provide “more structure, support, and resources” than the much looser working group established to coordinate muni securities enforcement activities about two years ago under former SEC chairman Christopher Cox.
That group, which was formed in April 2007, included about 20 members of the enforcement division from the SEC’s Washington, D.C., headquarters as well as its regional offices. It was headed by Elaine Greenberg, the head of the Philadelphia office, and Zehner.
SEC officials, who would only speak on background, said that the new muni group is expected to more formally coordinate and conduct muni enforcement actions, but it is not yet clear who would head it or how many people would be involved.
Municipal market participants had mixed views about the new unit. One source noted the SEC has already had an enforcement unit focused on munis and said it is not clear if the restructuring changes the priority of municipals. But another source said the new unit could reflect the emphasis on municipals that led to a slew of new cases in the mid-1990s, when the SEC brought charges in short order against Orange County, Calif., Maricopa County, Ariz., and Syracuse, N.Y.
The asset management unit, Khuzami said, will focus on investment advisers, investment companies, hedge funds, and private-equity funds, which “account for an ever-increasing share of public and private investment funds, and the lines between these various vehicles blur and overlap.”
The market abuse unit will address large-scale abuses and complex manipulation schemes by institutional traders, market professionals, and others, he said.
Meanwhile, the structured and new products unit will focus on opaque derivatives and financial products that have been at the center of the financial crisis. The lack of transparency in these markets has become “fertile ground for abuse and misconduct,” Khuzami said.
Finally, the Foreign Corrupt Practices Act unit will work on identifying violations of the law, which prohibits American companies from bribing foreign officials for government contracts and other business.