In a recent address to the New York City Bar Association, Robert Khuzami, Director of the SEC's Division of Enforcement, gave clear warning of the aggressive response the SEC is taking to the current financial downturn. Mr. Khuzami announced the creation of specialized enforcement units in the following areas of securities law:
1) Asset Management
2) Market Abuse
3) Structured and New Products
4) Foreign Corrupt Practices
5) Municipal Securities and Public Pensions.
He also detailed new incentives to inspire "cooperation" by individuals in enforcement actions, but quickly cautioned lawyers and our clients not to expect leniency simply because the client is a "good guy" or "all our competitors do it" or "we've always done it this way."
As far as priorities, the Director noted that responding to the current mortgage and credit crisis remains the highest priority of the Division of Enforcement, but Ponzi schemes, as exposed in Madoff, Stanford, and arguably in Nadel, remain a top priority. See attached PDF for full draft of the remarks of Robert Khuzami.
Bottom line: the SEC has been embarrassed in the recent past and won't want to be again. Look for stepped up enforcement and increasing numbers of joint SEC/Department of Justice investigations. Every criminal securities case I have had started as an SEC enforcement action. It is important for counsel to recognize the potential for a criminal referral to the Department of Justice early on and work to eliminate that possibility, or at least, minimize the exposure. Involving criminal counsel at the earliest stages is essential to preserve important testimony, defenses, and resources of the client.
Until next time,
Todd
Download the PDF File WSJ_khuzamispeech08102009.pdf