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Aguilar Calls for Self-Funding, New Penalty Guidelines

Bruce Carton | February 8, 2010

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.