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UPDATE 1-New SEC members offer differing views on enforcement
November 22, 2013 / 9:57 PM / 4 years ago

UPDATE 1-New SEC members offer differing views on enforcement

By Sarah N. Lynch

WASHINGTON, Nov 22 (Reuters) - The two newest members of the U.S. Securities and Exchange Commission on Friday offered opposing views about how their agency should exert its enforcement power, with one urging restraint and the other advocating a strict crackdown on lawbreakers.

In a speech in Los Angeles, Republican Commissioner Michael Piwowar said he feared his agency has delegated too much power to staff lawyers to issue subpoenas and raised concerns about punishing individuals for conduct that happened before the related laws were in place.

But Democratic Commissioner Kara Stein, giving her speech in Washington, praised the SEC for finally using all of its enforcement “tools in the toolbox,” and advocated aggressively seeking penalties against companies and individuals.

Friday marked the first major policy speeches by Piwowar and Stein, both former Senate Banking Committee staffers who have only been on the job for a few short months.

Their thoughts about SEC enforcement provided insight into the SEC’s deliberations when Chairwoman Mary Jo White, a former federal prosecutor, seeks to round up votes needed for cases.


Piwowar, an economist, used his speech before the Los Angeles County Bar Association to question a 2009 policy change that gave enforcement lawyers the ability to open their own inquiries, rather than wait for the commission to approve any “formal orders” of investigation.

That practice has led to the near-doubling of formal orders in the four fiscal years since it was implemented, and takes away some of the commissioners’ authority, Piwowar said.

“I question whether the processes currently in place are sufficient for the Commission to exercise the appropriate level of oversight of the formal order process,” he said in prepared remarks.

Piwowar also questioned the SEC’s legal basis for imposing newer types of punishments like certain collateral bars, which prohibit people from associating with a broad range of companies.

Piwowar said he fears the SEC is using a power granted it in the 2010 Dodd-Frank Wall Street reform law to impose such bars to certain cases that predated that law.


Stein expressed no such concerns about the Enforcement Division in a speech before the American Bar Association in Washington.

Instead, Stein applauded the SEC’s recent efforts to get tough on law-breakers, and urged the commission to pursue both public companies and high-level officials for wrongdoing.

“Imposing penalties on individuals and corporations is important,” Stein said.

Piwowar’s speech did not address the question of corporate penalties. But Reuters previously reported that the issue came up during a closed-door meeting where the SEC voted to fine JP Morgan in connection with the London Whale trades.

In that vote, Stein voted to bring charges against the company, but Piwowar dissented amid concerns it was unfairly punishing shareholders.

Stein did not specifically mention the JP Morgan case. But she told the audience corporate penalties have value.

“Some have argued... that we shouldn’t punish shareholders by imposing penalties,” she said.

“But I believe culture is important. If a firm’s culture is wrong at the top, then sometimes the best way to effectuate change is to incentivize shareholders to make the change.”

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