Another notable change in the 2010s was the increased availability of administrative proceedings in enforcement matters. Dodd-Frank Act had given the Commission new powers to impose cease-and-desist orders and monetary penalties against non-regulated persons, which allowed the Division to bring more matters as administrative proceedings in front of the SEC’s own Administrative Law Judges (ALJs) rather than in Federal courts.(1) It is not clear this change actually helped the staff, but it resulted in highly publicized complaints that the staff was benefiting from the “home court advantage” of such a forum.(2) These complaints produced litigation and appeals from proceedings alleging defects in the SEC’s processes, culminating in Lucia v SEC, a 2018 appeal that challenged the constitutional status of the ALJs. Lucia ended in defeat for the SEC when the Supreme Court ruled the method formerly used for appointing the ALJs violated the Constitution’s Appointments Clause.(3)
The Division also moved to keep up with technological change, after years of criticism for being slow to adopt tools in widespread use in the securities industry. In 2013 Ceresney established a Center for Risk and Quantitative Analytics in the Division and staffed it with industry experts specializing in fields such as mathematical finance, economics, and computer programming. Charged with developing cutting-edge tools to spot wrongdoing in areas ranging from “accounting fraud to insider trading to scams” in crowdfunding,(4) in its first two years the Center’s data analytics were used in over 100 cases.(5)
The story in the 2010s was of the recovery of the Enforcement Division – a return of its “swagger,” as Ceresney put it – and the recurrence of perennial issues. Insider trading was once more in the headlines, as hedge funds struggling to profit off even the slimmest informational advantage sought the “black edge” of inside information. In 2011 and 2012 Raj Rajaratnam, head of the hedge fund Galleon Group, and Rajat Gupta, former head of McKinsey & Co. and director of Goldman Sachs, were criminally convicted of insider trading, and the giant hedge fund S.A.C. Capital settled insider trading charges with the SEC and paid a penalty of over $600 million. (6) Accounting fraud again appeared as a major issue, as the Division brought charges against issuers such as CSC and against accounting firms for both audit deficiencies and ignoring conflicts of interest.(7) And by mid-decade FCPA enforcement rose again – in 2016, the Division brought more actions than in any previous year – with new attention paid to the hiring of relatives of powerful foreign officials.(8) Over 40 years after its establishment, the Division was still engaged in the ceaseless task of aggressively enforcing the securities laws.
(1) Dodd-Frank Act of 2010.
(2) Jean Eaglesham, SEC Is Steering More Trials to Judges it Appoints, Wall St. J. Oct 21, 2014; Urska Velikonja, Are the SEC’s Administrative Law Judges Biased? An Empirical Investigation, 92 Wash. L. Rev. 315 (2017).
(3) Lucia v SEC, 138 SCt. 2044 (2018).
(4) Scott Patterson, Meet the SEC’s Brainy New Crime Fighters, Wall St. J. Dec. 14, 2014; Andrew Ceresny oral history: 11.
(5) Mary Jo White, A New Model for SEC Enforcement: Producing Bold and Unrelenting Results, Speech at NYU School of Law, Nov. 18, 2016, SEC website.
(6) Sheelah Kolhatkar, Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street (2017).
(7) Gina Chon, SEC Secures $190m from CSC Over Fraud, Fin. Times June 5, 2015.
(8) Emily Glazer, Christopher Mathews, and Aruna Viswanathan, ‘Princeling’ Pact at Hand, Wall St. J. July 22, 2016: C1; SEC Annual Report 2017: 18.
Moderator: Jeffrey Manns
Presenter(s): Eric Grossman, Robert Khuzami, David Meister, Susan Merrill
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