As I said on May 20, “if you don’t like the role of the UK’s Financial Services Authority, just wait a bit. It changes weekly!”

Until today, the most recent of many statements coming out of the UK concerning the FSA’s fate was that while it would remain alive, it would be stripped of its enforcement powers. The UK’s new coalition government stated on May 20 that the FSA’s prosecutorial power to go after offenses such as insider trading and market abuse would be combined with the powers of the Serious Fraud Office and the Office of Fair Trading to create an economic crime agency.

But wait! Even this latest plan is subject to change, as the Guardian is now reporting that while the government still favors that plan, it faces “potentially insurmountable hurdles in raising enough money to fund a reorganisation. Ministers are warning privately that the government’s top priority is reducing the national deficit and that, in the circumstances, the agency scheme will have to be cancelled if it costs too much.”

So, once again: stay tuned for the next episode of “This Week in the Fate of the FSA.”

In her recent testimony before the Subcommittee on Financial Services and General Government in support of President Obama’s FY 2011 budget request of $1.258 billion for the SEC, discussed in detail here, SEC Chairman Mary Schapiro mentioned an interesting new project that I had not heard about before. Schapiro stated that if the proposed FY 2011 budget was approved by Congress, the SEC planned to use additional Enforcement Division resources to improve its information technology. In addition to several short-term projects, Schapiro said that the agency anticipates “major future projects, including a new state-of-the-art IT Forensics Lab.”

Schapiro did not provide any details on this intriguing new lab, but I reached out to SEC spokesperson John Nester to see if he could provide any additional information. In an email, Nester stated that the Enforcement Division’s “IT Forensics Laboratory provides for the collection and analysis of electronically stored information typically found on computing devices. To support the current and future investigation demands a new digital forensics laboratory is planned for this year, compliant with all the standards set by the worldwide forensic certification organizations.”

Nester added detail were not yet available regarding the lab’s cost and staffing.

In March 2009, it struck me that SEC Commissioner Luis Aguilar, who had only joined the SEC in July 2008, seemed to have quickly positioned himself as the SEC Commissioner with the strongest interest in enforcement issues.  In his less than a year at the SEC, Aguilar had already taken strong positions advocating changes in the enforcement program and even being critical of certain SEC policies and practices. Impressed, I wrote a post on this blog entitled, “Luis Aguilar: The Enforcement Commissioner” that noted his obvious interest in the enforcement program and that analyzed key points in what was then his most recent speech on the subject.

I had to smile when I saw that last week, in his speech at the annual SEC Speaks conference, Commissioner Luis Aguilar mentioned this “Enforcement Commissioner” reference, stating:

When I was referred to as the “Enforcement Commissioner” in Compliance Week, it was a title that I never expected, but it’s one I don’t run away from. The continued reinvigoration of Enforcement is essential.

Commissioner Aguilar stated that he was particularly pleased that an initiative he advocated last year at SEC Speaks–streamlining the formal order process–had been launched at the SEC, with positive benefits already evident.  This was a reference to the SEC’s relatively new process that delegates to senior staff the power to issue a subpoena. Under the prior system, Commissioner Aguilar noted, it would often take staff many months to pass through all the bureaucratic hoops required to obtain the Commission’s approval for a routine subpoena. Now, he noted, the new process vastly improves the speed and efficiency by which the SEC’s enforcement staff can conduct an investigation: “Last October, staff in San Francisco discovered a fraud and managed to investigate and file the case within a three-week timeframe. This would have been virtually impossible under our prior system.”

Commissioner Aguilar added that that the streamlined process provides the additional benefit of dismantling a regime that micro-managed a routine process. He believes it helps him and his fellow commissioners send the message that they support the staff.

Commissioner Aguilar also reiterated two proposals that he has been championing since he arrived at the SEC. First, he repeated his call for the SEC to revise its current “Penalty Statement of 2006,” which he described as a “misguided approach to how to weigh factors one considers when deciding whether to seek a corporate penalty.” This Statement prioritizes two factors

• The presence or absence of a direct benefit to the corporation as a result of the violation; and
• The degree to which the penalty will recompense or further harm the injured shareholders.

Commissioner Aguilar said these guidelines could be significantly improved and do not reflect his views because the conduct itself becomes of secondary importance, and the Commission fails to appropriately focus on deterrence. “Every day these guidelines are in place they adversely impact the cases we are working on,” he stated.

He also reiterated his continued support for the SEC to be self-funded, a subject I discussed at length in this column back in September.  Doing so would be “transformational,” he believes, because it would enable the SEC to set multi-year budgets and respond promptly to drastically changing markets, while also maintaining appropriate staffing.

The SEC has been investigating the admitted financial fraud at India’s Satyam for just over a year now. It was January 7, 2009 when B. Ramalinga Raju, chairman and chief executive of Satyam, suddenly resigned after confessing to falsifying the company’s financial records in a $1 billion fraud. Raju famously stated that day that the ongoing fraud had been “like riding a tiger, not knowing when to get off without being eaten.”

The SEC is investigating the Indian company because although Satyam securities are traded in India, they are also traded as ADRs in the U.S. There have been numerous reports of SEC attorneys visiting Satyam in India, but no information about the investigation has surfaced to date.

This week, however, it was reported that the SEBI, India’s securities regulator, has now asked the SEC not to take any action against Satyam as it would “amount to punishing shareholders of the IT company for a second time.” The Economic Times reports that Indian Corporate Affairs Minister Salman Khurshid said that “SEBI has marshalled a request (to US Securities Exchange Commission) and we are monitoring them. On the political level such signals can be sent and we have already sent them.” Khurshid added that “The case has been laid out quite well. And the case being that nothing should actually punish the shareholders a second time over…because any fine imposed on the company will inevitably hurt the shareholders.”

I do not believe the SEC will walk away so quickly from this, but it is worth keeping an eye on where this goes.

2009 was a year to forget for the Securities and Exchange Commission, Wall Street, the White House, law firms-everywhere, really. However, 2009 was truly the gift that kept on giving for those of us who write about SEC enforcement and securities litigation. Here is my look back at 2009, which I have learned I must preface with this important warning:  Mom-the column below includes some efforts at satire. These efforts are marked in italics.

Okay, moving on! Let’s start in January, which began, as it has for the last three years, with members of Congress Louise M. Slaughter and Brian Baird sponsoring the “Stop Trading on Congressional Knowledge Act.”  The STOCK Act, which again failed to become law, would prohibit Congress and their staffers from engaging in insider trading based on nonpublic information obtained through their official positions.  The other 433 members of Congress once again dismissed the bill as “crazy talk” and ordered Slaughter and Baird back into hibernation until January 2010.

B. Ramalinga Raju, chairman and CEO of Satyam Computer Services, resigned after confessing to falsifying the company’s financial records in a $1 billion fraud.  He said the fraud was “like riding a tiger, not knowing how to get off without being eaten.” Raju promptly received a curious call from golfer Tiger Woods’ lawyers, who said Tiger wanted to know “what exactly you meant by that and whether $5 million would be enough for you to not say that again.”

In February, lawyer Marc Dreier, whose outrageous $700 million fraud was spared from being the securities fraud story of the year only because of the simultaneously unfolding Madoff scandal, asked the court to allow him to remain free on bail, but on “house arrest” with armed guards pending his trial. This prompted Judge Jed Rakoff to ask the 2009 Judicial Question of the Year to Dreier’s lawyers: “Are these armed guards authorized to shoot him?” After careful consideration and discussion with Dreier (who presumably said, “Hell no!”), Dreier’s lawyers said the guards could not, repeat NOT, shoot their client. Judge Rakoff granted the request anyway, and ordered Dreier to be held in Dreier’s $10 million Manhattan penthouse apartment until trial. In March, CFTC Commissioner Bart Chilton warned the public of “rampant Ponzimonium.”  The Topps Company jumped on board, announcing that it was issuing a series of trading cards featuring the “world’s biggest hoaxes, hoodwinks and bamboozles” such as Bernard Madoff, Charles Ponzi, and Enron.  From his penthouse, Dreier issued a statement that he was “finished taking a backseat to Madoff” and that he demanded a trading card, too.

The SEC charged Madoff’s auditor with securities fraud for falsely representing and “pretending” that they had conducted legitimate audits, when in fact the auditors had not. The auditors wrote a one-line reply brief to the SEC that read: “Really?? Pretending to do one’s job? Are you sure you want to go there?”

Asked in an interview whether she was tough enough to shake things up at the agency, new SEC Chair Schapiro responded that she had been “called the Muammar Qaddafi of regulation.”  From his palace in Libya, Colonel Qaddafi stated that he was “flattered but that Schapiro has a lot to prove first.”

In April, the L.A. Times, The New York Times and the UK’s Telegraph all ran stories announcing that the SEC had joined Twitter as a part of Schapiro’s effort to revitalize the SEC and make it more transparent.  The articles did not mention that that the SEC had already been actively using Twitter since July 2008, leading someone using the Twitter username @maryqaddafi to tweet that “it would be super if my Twitter followers could just keep that bit of information on the down low.”

Robert Khuzami, the new Director of the SEC’s Enforcement Division, addressed the Enforcement staff on his first day to outline his four major themes: being “strategic, swift, smart and successful.”  Madoff whistleblower Harry Markopolos immediately held a press conference claiming that Khuzami’s “single-minded pursuit of goals beginning with the letter ‘S’ was impeding the agency’s mission.”

The SEC’s Inspector General released a report stating that two attorneys at the SEC, including one in the Enforcement Division, were under “active” criminal investigation by the FBI for trading stocks based on inside information learned on the job.  The SEC promptly took action to bolster its internal processes to prevent against such trading, but also warned that it would “file an equally ironic case against anyone caught laughing at this development.”

In June, counsel for Bernard Madoff suggested to the court that a 12-year sentence would be appropriate for their client. After a brief awkward pause followed by uproarious laughter, the court sentenced Madoff to 150 years in prison.  Sholam Weiss, presently serving a record 845-year sentence after being convicted of racketeering, wire fraud and money laundering in the collapse of National Heritage Life Insurance, was heard to say “Wait-I’m serving 695 more years than Madoff?!”

June also brought a new type of collectible: Financial Crisis “Most Wanted” Playing Cards, featuring Madoff, R. Allen Stanford, and others such as Dick Fuld and Angelo Mozilo. In his penthouse, Dreier screamed, “No Dreier card again? Are you kidding me?  Did Madoff or Stanford walk into an office building and impersonate an actual lawyer from the Ontario Teachers’ Pension Plan? I don’t think so!!”

In July, prosecutors in the R. Allen Stanford case gave us the 2009 Thankless Job of the Year: someone, they said, would soon be tasked with the roughly two month long task of “re-assembling the contents of three bags of shredded documents” that were sought as evidence in the case.  12,000 associates laid off from major law firms in 2009 immediately applied for the position.

The trial began of William Jefferson, a nine term Congressman from Louisiana charged with soliciting bribes and violating the Foreign Corrupt Practices Act. This led to the first published photos of Jefferson’s now-famous “cash in the freezer,” i.e., $90,000 wrapped in aluminum foil in Jefferson’s freezer tucked inside containers of Pillsbury Pie Crust and Boca Burgers. From his new home in the Butner Correctional Facility in North Carolina, Madoff texted Dreier with a “rolling eyes” emoticon to say that “everyone knows you use the Red Baron Frozen Pizza box to hide sums of cash over $75,000.”

In August, a theatrical play called “Enron” opened in Chichester, England. The Guardian’s review stated that it was “an exhilarating mix of political satire, modern morality and multimedia spectacle.”  The play was so successful that by September, Columbia Pictures had entered into a “high six-figure deal” to acquire the screen rights and adapt the play into a feature length film. 43 telephone calls to Columbia Pictures from “B. Ebbers,” an inmate in a Louisiana federal prison pitching “WorldCom, the Musical,” went unreturned.

In October, Stanley Chais, a money manager who was sued by the SEC after feeding hundreds of millions of dollars to Madoff, argued that the SEC’s claims against him were barred because the SEC’s many inspections of Madoff’s firm without taking any action “provided credibility to Madoff.”  The SEC responded that this was the nicest thing anyone had said about them all year.

In November, the SEC began running an ad for a “Supervisory General Attorney” in the Enforcement Division, which included a prominent headline blaring “SEC RANKED THIRD BEST FEDERAL WORKPLACE FOR 2007!” (capital letters, bold face and exclamation point in original). SEC Inspector General H. David Kotz stated that he was opening a 12-month investigation into how the ranking was determined, and would be offering best practices for future rankings.

Also in November, the U.S. Marshals Service collected every watch, golf ball, sand wedge, cuff link, earring, duck decoy, wooden milk stool, baseball jacket, and baseball mitt ever owned by the Madoffs and sold them off at auction. The person who paid $14,500 for a blue satin New York Mets baseball jacket with “MADOFF” stitched across the back called the item a “great value” that could be paired “fabulously” with the Dennis Kozlowski button-fly jeans he’d bought at auction in 2007.

Finally, just under the wire in December, the SEC charged a former vice president of Pride International, Inc. who was responsible for FCPA compliance with … wait for it… violations of the FCPA. “We warned you in April not to laugh at SEC enforcement lawyers being investigated for insider trading,” the SEC said.

In a speech yesterday at the AICPA National Conference on Current SEC and PCAOB Developments, SEC Enforcement Director Robert Khuzami discussed some statistics from fiscal year 2009, and provided an update on three key areas of change in the Enforcement Division.

Khuzami first offered some interesting statistics from the SEC’s recently-ended fiscal year 2009. He stated that the SEC:

• Ordered wrongdoers to disgorge over $2.0 billion in ill-gotten gains (an increase of 170% over fiscal 2008);
• Ordered wrongdoers to pay penalties of $345 million (an increase of 35% over fiscal 2008);
• Sought 71 emergency temporary restraining orders to halt ongoing misconduct and prevent further investor harm (an increase of 82% over fiscal 2008);
• Sought 82 asset freezes to preserve assets for the benefit of investors (an increase of 78% over fiscal 2008); and
• Issued 496 orders opening formal investigations (an increase of over 100% over fiscal 2008).

Kuzami then addressed the numerous, significant structural changes now in the works at the SEC, comparing the effort to “changing the tires on a moving car.” He emphasized three high points:

1. Specialization

Khuzami said that Enforcement has created five new national specialized investigative groups that will be dedicated to high-priority areas of enforcement:

* Asset Management, which will focus on investment advisers, investment companies, hedge funds and private equity firms.

* Market Abuse, which will focus on large-scale insider trading and market manipulation.

* Structured and New Products, which will focus on complex derivative and newly-developed products;

* Foreign Corrupt Practices Act cases; and

* Municipal Securities, which will focus on suspect activity in the market for municipal securities.

Creating these groups, he said, will help the SEC take full advantage of the broad range of expertise that already exists in the Division. In addition, members of the specialized units will gain “investigative insights that can only be developed by conducting multiple investigations in the same subject area, which will lead to more effective, efficient investigations.”

2. Management Restructuring

Khuzami said that the Enforcment Division is adopting a flatter, more streamlined organizational structure that will eliminate an entire layer of management, i.e., the “branch chief” position.  Some former branch chiefs will be reassigned so that they will now be conducting front-line investigations (others, reportedly, will be promoted to the higher level position of Assistant Director).

3. Streamlining

Kuzami said that Enforcement was decentralizing certain types of decision-making to reduce bureaucracy and increase autonomy. For example, senior officers now have delegated authority to approve subpoenas for documents and testimony, without having to obtain advance approval from the Commission. Routine decisions in the opening of investigations, the decision to recommend charges, and settlement also can now be made by those same senior officers without advance approval by more senior personnel.

Kuzami also made a special point to discuss what he called the “cooperation initiative.”  The SEC is trying to develop tools, he said, to encourage individuals to cooperate in SEC investigations. These tools will include cooperation agreements, which will “provide the possibility of reduced sanctions in appropriate circumstances, such as where an individual is ‘first in the door’ and provides us with valuable information concerning wrongdoing.”

Don’t you hate it when your boss at the hedge fund you work for pressures you for inside information about the public company you used to work for?

And you provide your boss with the inside information for a while, but when you stop providing it he fires you??

And you confide to your psychologist about the pressure you were under, the reason for the firing, etc., but when you later get divorced, your psychologist is deposed and testifies about the insider trading and tipping you told her about???

And then the U.S. Senate takes an extreme interest in potential insider trading by the hedge fund you worked for and, as part of nine federal investigations into the matter, obtains the psychologist’s deposition testimony and makes sure it goes to federal prosecutors and the SEC????

I hate when that happens!

I haven’t updated the International Insider Trading Case Map in way too long but when I do, I’ll be adding Estonia to the list.  Last week, Estonian prosecutors charged a former analyst at SEB Enskilda AS with insider trading in the shares and options of Baltic telecommunications firms AS Eesti Telekom and TEO LT.

According to prosecutors, analyst Dmitri Vassiljev traded based on his access to nonpublic information on TeliaSonera AB’s offer to buy out minority shareholders in the two companies.   Eesti Telekom rose 23 percent and TEO jumped 30 percent after the offer was announced, allegedly giving Vassiljev 1.5 million krooni ($142,700) in illegal profits.

Bloomberg reports that Vassiljev has “agreed with the charges he is facing,” which carry a fine and a prison term of up to 3 years. The insider trading charges against Vassiljev are reportedly the first such charges ever brought in an Estonian court (which Lohmus Haavel & Viisemann and certain of its employees are probably quite happy about).

Lawyers–what do you know about Fair Value Accounting? Nothing? Same here.

That’s part of the reason why I will be attending today’s webcast (Oct. 1, 1 pm Eastern) entitled, “Fair Value Accounting: What Lawyers Need to Know.” The other part? I’m moderating it!

A panel of securities and accounting experts will discuss the evolution of fair value accounting regulations and the impact of the guidelines in accounting and legal contexts. The panel will address issues including:

• A brief history of fair value accounting and the FASB regulations and amendments made effective in 2008 and 2009;
• The debate over the effects and application of fair value accounting in practice; and
• Why fair value accounting is such fertile ground in litigation

Please join Dr. Andy Wong, Managing Principal with Analysis Group; Ray Ball, Sidney Davidson Professor of Accounting at the University of Chicago, Booth School of Business; and Michael Young, Partner at Willkie Farr & Gallagher LLP as they address these issues and your questions in this free webcast. To sign up, please visit this link (click here)

Bank of America is under seige from all sides right now for its disclosures prior to the Merrill Lynch acquisition (SEC, NY AG, DOJ, FBI, Congress), but its “biggest” problem yet (at least in terms of the number of zeroes involved) may have come in a lawsuit filed against in August 2009.

A customer, Dalton Chiscolm, sued BofA in August for “1,784 billion, trillion dollars,” demanding that it be deposited into his account the next day. He also demanded an additional $200,164,000 for good measure. U.S. District Judge Denny Chin called the demand “incomprehensible” in an order released today.

Reuters notes that the demand is equivalent to a 1 followed by 22 digits, and “dwarfs the world’s 2008 gross domestic product of $60 trillion.” “These are the kind of numbers you deal with only on a cosmic scale,” said Sylvain Cappell, New York University’s Silver Professor at the Courant Institute for Mathematical Sciences. “If he thinks Bank of America has branches on every planet in the cosmos, then it might start to make some sense.”

(via Paul Kedrosky)