WASHINGTON — In his first congressional testimony since becoming the Securities and Exchange Commission’s director of enforcement, Robert Khuzami told a Senate panel yesterday that the SEC will seek expanded authority to impose penalties in its enforcement actions.
Speaking before the Senate Banking subcommittee on securities, insurance, and investment, Khuzami said the SEC will soon request the authority to seek penalties in cease-and-desist proceedings and to impose civil monetary penalties against individuals who aid and abet violations of the Investment Advisers Act of 1940, among other changes.
In prepared testimony, Khuzami also said he has discussed a number of other items with chairman Mary Schapiro that would aid SEC enforcement efforts, including “a whistle-blower program ... and legislation in areas such as swap agreements and hedge fund regulation.”
“I understand that [Schapiro] will be providing some of these legislative recommendations to you very soon,” he said. “These proposals will be aimed, in part, at ensuring we have sufficient authority and reach to combat fraud and other market misconduct.”
The additional resources come as new investigations have surged at the agency. The SEC has opened more than 287 investigations since the end of January, compared to 217 last year.
As part of a review of possible changes that would make the division more efficient and successful, Khuzami said he is considering whether the division should increase its use of specialized groups along product, market or transactional lines, in order to better understand the areas it investigations and to see patterns, links, trends and motives.
Sen. Charles Schumer, D-N.Y., asked Khuzami if he has considered moving the commission’s enforcement staff to New York City. Khuzami said he has not.
Khuzami said also that the SEC will seek the authority for “nationwide service of process in civil actions” to save on staff travel and “duplicative depositions.” The new authority would allow the commission to obtain trial and deposition subpoenas for a defendant from any federal court, rather than having to obtain them from the defendant’s closest federal court and then having to travel to that court to get their testimony.
Khuzami’s testimony came a day after the Government Accountability Office released a highly critical report on the deficiencies with the enforcement division under former SEC chairman Christopher Cox.
The GAO report noted that the SEC staff worked around a burdensome system of internal-case review that slowed cases and created a risk-averse culture. In addition, two “corporate penalty policies” put in place in 2006 and 2007 had the effect of delaying and producing fewer and smaller penalties.
The GAO report made four specific recommendations for enhancing the enforcement division, including an alternative organizational structure and method of reporting for the office of collections and distributions, which oversees the disbursement of funds to investors harmed by securities fraud, and improved communication among enforcement staff.
Khuzami said he agreed with each of the GAO recommendations and that he is moving to allocate additional resources to a number of areas within the division.
The changes include boosting the number of trial lawyers in light of increased case load as well as to present a “credible threat” that the commission is willing to go to trial, he said.
Khuzami also said he will seek to increase the number of administrative and paralegal assistants to free up time for the division’s lawyers and accountants.
