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Global SEC Enforcement; Mutual Recognition; More

Melissa Klein Aguilar | June 10, 2008

As corporate scandals go global ever more frequently, so do regulatory enforcement efforts.

That’s according to Linda Chatman Thomsen, head of enforcement for the Securities and Exchange Commission’s enforcement division. Speaking last week at Compliance Week 2008, Thomsen told some 500 corporate legal and compliance officers that information sharing among regulators is becoming dramatically easier and much more common.


“In the future you can expect increasing global coordination on the law enforcement front,” she said. The SEC is “moving to a stage where we’re not just sharing information and providing assistance, but we’re thinking about how to do global law enforcement.”

In her keynote speech last Wednesday, Thomsen reminded attendees that compliance personnel are “the first line of defense” against corporate abuses. The agency has filed a few enforcement actions against compliance officers directly, but she assured the crowd that she expects that to be a rarity. “You are the canaries in our comfortably appointed coal mines,” she said. “You can, and must, sound the alarm when problems can still be corrected.”

She also reiterated the need to ensure that corporate compliance policies and procedures “have life.”

“Enron had one of the best written compliance procedures any one could’ve dreamed up, but it was only on paper,” she told the group. “Compliance policy is useless if no one abides by it.”

As for the SEC’s enforcement priorities, Thomsen quipped that, “We’re still covering the waterfront with respect to securities laws violations and making sure everyone thinks we’re everywhere.”

Insider trading remains on the Commission’s radar screen. Thomsen noted that insider-trading cases typically account for 8 to 12 percent of the agency’s enforcement cases annually. Recently, however, she has been “dismayed” by the nature of those cases, which have involved senior executives—a trend Thomsen described as “troubling.”

The SEC filed 47 insider-trading cases last year, compared with 46 the prior year. But the number of defendants and respondents in 2007’s cases jumped 16 percent from the prior year, to 110.

Thomsen called the nature of many of the offenses “reminiscent of Ivan Boesky and Dennis Levine,” the poster-boys for corporate wrongdoing in the 1980s. Moreover, she said, there’s been a trend toward multiple instances of insider trading. “For those who work in compliance, the need to remind people that the consequences of this kind of behavior is quite acute,” she said.

There’s also been a swell of activity in the Foreign Corrupt Practices Act arena. Combined, the SEC and the Department of Justice in the last two years have brought more cases than they had in the act’s prior 30 years. “There are more actions, more criminal actions, and with the global economy, there’s more opportunity for FCPA issues to arise,” she warned.

Canada First Stop on SEC’s Mutual Recognition Trail

The Securities and Exchange Commission continues chugging along its path to mutual recognition of other nations’ securities regulators, and it seems that Canada is the first stop on the line.

The Commission recently announced a schedule for completing a “process agreement” with Canada’s council of securities regulators, which should pave the way for “a potential U.S.-Canada mutual recognition arrangement.” The SEC and Canadian Securities Administrators expect the deal to be complete this month.

Mutual recognition would allow Canadian securities exchanges, broker-dealers, and certain other Canadian financial service providers to operate in the United States under Canadian regulatory oversight, and would likewise give U.S. securities markets and financial service firms greater freedom to operate in Canada under SEC oversight.

Ultimately, the SEC would like to achieve mutual recognition with any nation whose securities regulation schemes measure up to U.S. standards. Supporters say such a framework would eliminate dual regulation and regulatory overlap. It would also mark a major shift for the SEC, which has always required foreign exchanges that conduct business in the United States to register both the exchange itself and the securities trading on it with the Commission, even if the exchange operates outside the United States and the securities it lists are registered in their home countries.

The SEC has taken baby steps to mutual recognition since last June, when the agency held a roundtable discussion on the subject. In March, the Commission vowed further action on the idea; it subsequently announced preliminary discussions with Australia and talks of a process agreement with the European Commission and the Committee of European Securities Regulators.

The SEC also plans to propose reforms to Rule 15a-6, the 19-year-old rule that governs U.S. investor contacts with foreign broker-dealers.

SEC Posts e-Proxy Guidance for Small Companies

Issuers recently received more guidance on the SEC’s so-called e-proxy rules in the form of another “Small Entity Compliance Guide.”

The latest guide relates to the rule adopted last July, Shareholder Choice Regarding Internet Availability of Proxy Materials, which requires companies and other soliciting parties to make their proxy materials available both online and in paper form, and to allow investors to choose how they access the materials.

The guide, posted by the SEC Division of Corporation Finance in late May, explains the two choices companies have for providing their proxy materials to shareholders—“notice only” and “full-set delivery”—and includes a chart comparing key differences between the two.

Large accelerated filers have had to comply with the rule for proxy solicitations since January. Other filers and soliciting parties, including registered investment companies, must comply for proxy solicitations starting next January.

As always, the guide includes the usual caveat that it “summarizes and explains rules adopted by the SEC, but is not a substitute for any rule itself.”

Other recent compliance guide topics have included transitioning to the SEC’s scaled disclosure rules for smaller reporting companies, eligibility for smaller companies to use Form S-3 or F-3 for primary securities offerings, and complying with new rules aimed at facilitating the use of electronic shareholder forums.