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."