SEC Names 5 New Enforcement Chiefs

WASHINGTON — In the biggest reorganization of its enforcement division in 30 years, the Securities and Exchange Commission Wednesday announced the new heads of five specialized enforcement units, including Elaine Greenberg, who will lead a unit expected to boost enforcement of municipal securities and public pension abuses.

The muni and public pension fund unit will include Mark Zehner, regional municipal securities counsel, as its deputy chief. It will focus on bringing cases in five areas of misconduct: offering and disclosure fraud; tax or arbitrage-driven fraud; pay-to-play and public corruption violations; public pension accounting and disclosure violations; and valuation and pricing fraud.

“Our unit will focus on developing strong cases that send a resounding message about that particular conduct, cases that will have an impact on the behavior of market participants,” Greenberg, an associate regional director, said at a press conference.

“Through the unit, we plan to build a comprehensive enforcement program where we will develop the case law and legal precedent through the high-impact cases that we bring,” she said. “We also will proactively seek to identify market activities that pose the greatest risk of harm to investors and are indicative of potential violations.”

The SEC also announced an initiative to encourage individuals and companies to cooperate and assist in investigations, unveiling formal guidelines for the issuance of three types of agreements as well as a streamlined process for submitting witness immunity requests to the Justice Department.

The commission described for the first time how it will evaluate whether, how much, and in what manner to credit cooperation by individuals.

“This is a potential game-changer for the division of enforcement,” said Robert Khuzami, the head of the SEC division. “There is no substitute for the insiders’ view into fraud and misconduct that only cooperating witnesses can provide.”

The muni and public pension enforcement unit succeeds an informal national working group announced in 2007 that was co-led by Greenberg and Zehner out of the SEC’s Philadelphia regional office. The new unit, which will continue to be based there, currently includes only Greenberg and Zehner but is expected to grow with more staff over the coming months.

SEC officials would not say how large each new unit will become, but Khuzami envisions about 20% of the division’s 1,100 staff being assigned to these new units, officials said.

Khuzami said each of the units will have additional resources they will be able to utilize, “including technology support, administrative support, and the hiring of [outside] individuals who have industry knowledge or market expertise.”

Asked if adding public pension funds to the muni unit’s focus would dilute its activities, Khuzami said he did not believe it would because “these are areas that complement each other and obviously the extent to which we find ... that the extent of misconduct if significant, we will add resources as necessary.”

Khuzami said a structured and new products unit will be headed by Kenneth Lench. The unit will focus on complex derivatives and financial products. Lench, an assistant director, previously helped oversee the SEC’s auction-rate securities investigations and settlements.

Another unit on asset management will be co-led by Bruce Karpati and Robert Kaplan, both of whom are assistant directors in the enforcement division. The unit will focus on investigations involving investment advisers, investment companies, hedge funds, and private-equity funds. Karpati founded and was head of the SEC’s hedge fund working group.

A unit on market abuse will be led by Daniel Hawke and will focus on investigations involving large-scale market abuses and complex manipulation schemes by institutional traders, market professionals, and others. Hawke is the director of the SEC’s Philadelphia regional office.

A unit on foreign corrupt practices and will be led by Cheryl Scarboro, an associate director in the enforcement division.

Meanwhile, a new office of market intelligence will be led by Thomas Sporkin. It will analyze tips according to internally developed risk criteria as well as help set SEC priorities using the expertise of the commission’s other divisions and the specialized units. Sporkin previously served as the SEC’s deputy chief in its office of Internet enforcement.

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