Thursday, August 13, 2009


Since Robert Khuzami took over as Director of the SEC’s Enforcement Division (“Division”), the Division has introduced a number of new initiatives to increase its effectiveness. These initiatives include a restructuring of the Division, an overhaul of its operation, and a renewed effort to bring enforcement actions against wrongdoers.

In a recent speech by Mr. Khuzami before the New York City Bar Association, he acknowledged the criticism the SEC has endured as a result of the Bernard Madoff scandal, and responded by saying that the Madoff scandal “should not be permitted to obscure the 75-year tradition of vigorous enforcement [by the Division]…to protect the investing public.” With that mindset, Mr. Khuzami has put into motion four main initiatives with the goal of increasing investor protection.

First, the Division will be creating national specialized units focused on particular, specialized areas of securities law. Mr. Khuzami indicated that the Division will initially have five specialized units: (1) Asset Management Unit; (2) Market Abuse Unit; (3) Structured and New Products; (4) Foreign Corrupt Practices Act; and (5) Municipal Securities and Public Pensions. The goal of this initiative is to make the Division more efficient and more knowledgeable, thereby leading to better investigations.

Second, the Division plans to streamline its management structure and internal processes. With regard to the management structure, the Division will be moving away from its decentralized structure and redeploying its branch chiefs to focus on conducting investigations, thereby minimizing the number of managers (i.e., decision-makers). In addition, Mr. Khuzami will be assuming full power to issue formal orders of investigations, which he plans to delegate to senior officers throughout the Division. This initiative aims to move cases along more quickly, thereby giving the Division more time to focus on new matters.

Third, the Division has created an Office of Market Intelligence, which will have the sole responsibility of collecting, analyzing and monitoring all tips, complaints and referrals the SEC receives each year. This Office will give the Division the ability to focus its investigations on the most credible tips, thereby increasing the efficiency of its investigations.

Finally, the Division is working to increase the incentives offered to individuals to promote cooperation with SEC investigations. This would provide the Division with access to more concrete information, thereby allowing the Division to more effectively uncover wrongdoing.

As is evident, Mr. Khuzami has implemented a plan to once again make the SEC a powerful enforcement mechanism. The results are already apparent in that since late January 2009, the Division has opened 10% more investigations, has filed 147% more temporary restraining orders, and has filed roughly 30% more enforcement actions.

A complete copy of Mr. Khuzami's speech can be found here.

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