43rd Annual Rocky Mountain Securities Conference Coverage: Enforcement in an Era of Reform and Budgetary Constraints

The second presentation was moderated by George B. Curtis of Gibson Dunn & Crutcher LLP and included five enforcement related panelists: John Walsh, U.S. Attorney for the District of Colorado; Robert Khuzami, Director of Enforcement for the Securities and Exchange Commission; Jean Woodford, First Assistant Attorney General for Securities and Financial Fraud; Fred Joseph, Commissioner of the Colorado Division of Securities; and Julie Lutz from the Securities and Exchange Commission. Each of the panelists were given an opportunity to speak on the subject, however, Mr. Khuzami directed the discussion.

The panel members discussed restructuring of their enforcement strategies, organizations, and reporting. The panel indicated that an emphasis has been placed on counteracting market abuse, structured debt, new financial products, as well as market intelligence to which the SEC has dedicated a new division that monitors tips and monitors market rumors. In particular, the SEC has been reorganized so the various more focused enforcement units are spread throughout the country, enabling increased cooperation amongst local branches, better diversification of resources, and increased enforcement ability. Additionally, the SEC is implementing a new enforcement philosophy that mirrors a law enforcement philosophy implemented in New York City by which unsolicited windshield washers and other seemingly innocuous street violations are prosecuted because of the likelihood of other more serious crimes committed in the future, so too will minor offenders and suspicious persons be targeted by the SEC and Department of Justice.

Throughout the series an emphasis was put on the cooperation strategies used by the SEC and other enforcement organizations. There is currently an initiative underway to encourage both individuals and organizations to cooperate to the fullest extent, thus the enforcement agencies emphasize the importance of being the first to offer evidence or testimony and the protection that will be offered for cooperating. The cooperation can work in different ways, whether it is with an individual whistleblower at a company, or a company helping and reporting the wrongdoing of an individual employee.

The panel spent significant time discussing criminal enforcement alongside the civil enforcement provided by the SEC. The criminal enforcement and prosecution arms are critical in assisting with cooperation agreements the SEC promulgates because criminal prosecution is a possibility for people who cooperate in civil suits but do not have non-prosecution agreements from the U..S Attorney's Office.  The criminal enforcement division generally focuses its efforts on pursuing leads based on tips, complaints, and referrals from other sources. The structure of criminal enforcement agencies has expanded and changed of late to include expanded trial units, multi-office teams, more efficient case management, and better interfacing with witnesses and offenders; these changes come in an environment of budgetary cutbacks which the enforcement agents agreed were a difficult hurdle. Enforcement resources must be balanced between the need for using the budget appropriately, the priorities of the agency, and still enforcing policy, particularly in the face of a marked perceived increase in insider trading cases.