By Sarah N. Lynch and Aruna Viswanatha
WASHINGTON, Sept 26 The head of the U.S.
Securities and Exchange Commission warned that her agency will
aggressively use its powers to fine wrongdoers and is seeking
other creative ways to hold companies and individuals
accountable for their misdeeds.
"Meaningful monetary penalties - whether against companies
or individuals - play a very important role in a strong
enforcement program," SEC Chair Mary Jo White said in a speech
in Chicago on Thursday.
"They make companies and the industry sit up and take notice
of what our expectations are and how vigorously we will pursue
wrongdoing," she said.
The comments mark White's second major enforcement policy
shift since she took over the helm of the SEC in April.
White, a former federal prosecutor, has already sought to
add teeth to SEC settlements by requiring defendants in certain
cases to admit to wrongdoing, rather than settle without
admitting or denying the charges.
White's public remarks on Thursday come as SEC staff and
commissioners in recent weeks have reignited a long-standing
debate about the merits of mega fines against publicly traded
companies, according to several people familiar with the matter.
Critics have long held that sizeable fines against public
companies unduly punish ordinary shareholders, while proponents
argue they carry a strong deterrent effect.
The closed-door debate was evident in the SEC's settlement
last week with JPMorgan Chase & Co over the "London
In a non-public meeting the week before the settlement was
announced, the SEC's newest commissioner, Michael Piwowar, a
Republican, voiced concerns that the SEC was fining the company,
as opposed to considering ways to levy penalties against
top-level executives at the bank, according to people familiar
with the situation.
The commissioners ultimately approved the settlement 2-1,
with Piwowar voting against it, the sources said. Democratic
Commissioners Kara Stein and Luis Aguilar, who has long pushed
for tougher penalties against companies, voted in favor of it.
White and SEC Republican Commissioner Daniel Gallagher were
not present for the vote because their former law firms
represented the bank.
The debate came up again in the context of other enforcement
cases later that day, some of the sources said.
Corporate penalties have long been considered controversial.
The SEC did not win authority from Congress to seek
penalties until 1990, and even then, the agency was slow to
embrace the practice.
It took more than 10 years for the agency to ramp up
penalties, in the wake of the accounting scandals at Enron, Tyco
and Worldcom, according to a 2010 article in the Securities
But in 2006, then-SEC Chair Chris Cox shifted gears amid
concerns about corporate penalties from some SEC officials.
The central question was: When is it appropriate to fine a
publicly traded company, and what factors should be used to
determine whether to levy one?
Cox created a corporate penalty pilot program that required
enforcement staff to get approval from commissioners before
He also released new guidelines on how the commission should
consider when to levy penalties, such as the egregiousness of
But the greatest weight was given to two factors: whether a
fine would only harm already-injured shareholders and whether
the company benefited from the alleged wrongdoing.
In recent years, the SEC has faced mounting pressure to
punish both individuals and corporations for their roles in the
2007-2009 financial crisis.
When Mary Schapiro took over as SEC chair in 2009, she ended
the pilot program that required pre-approval on penalties.
However, she did not push to formally revise the penalty
guidelines that Cox put in place, despite pressure from some
outspoken critics at the SEC, including Aguilar.
Instead, people familiar with the agency's inner workings
say the guidelines were not as strictly followed as they had
been under Cox.
In her speech before the Council of Institutional Investors
on Thursday, White said she felt the 2006 guidance under Cox,
while "useful," is not "binding" for the agency.
"The bottom line for me is that corporate penalties will be
considered in all appropriate cases," she said. "Whether, in
fact, to seek a corporate penalty and the appropriate amount are
decisions that must be based on a consideration of all the facts
Like her predecessor Schapiro, White on Thursday also said
she staunchly supports legislation that has been proposed in the
U.S. Senate that would bolster the SEC's penalty powers.
The bill, which has yet to gain traction, would let the SEC
seek penalties based on either three times the ill-gotten gains
or the investor losses- whichever is greater.
It would also let the SEC seek additional penalties against
"These would be very powerful, additional tools," White
Besides penalties, White said the SEC should consider
requiring the company at issue to adopt measures that would make
the misconduct less likely to occur again.
At the same time, White stressed that it will be equally
important to pursue cases against individuals as well.
In the case of JPMorgan's whale trades, for instance, the
SEC's investigation is still continuing into whether certain
high-level people at the bank should face charges, one of the
people familiar with matter said.
"I have made it clear that the staff should look hard to see
whether a case against individuals can be brought," White said.
"I want to be sure we are looking first at the individual
conduct and working out to the entity, rather than starting with
the entity as a whole and working in."