Last year at Securities Enforcement Forum 2013 in Washington, D.C., SEC Chair Mary Jo White announced her goal for SEC enforcement to be--or at least appear to be--"everywhere." She compared her enforcement approach to the “Broken Windows” strategy that was employed in the 1990s by then-New York City Mayor Rudy Giuliani and Police Commissioner Bill Bratton, under which the NYPD pursued all infractions, no matter how small, to avoid an environment of disorder and to send a message of law and order. She explained that the Enforcement Division would pursue all types of wrongdoing for an agency that "covers the entire neighborhood and pursues every level of violation."

Almost exactly one year later at Securities Enforcement Forum 2014, SEC Commissioner Michael Piwowar took issue with the Broken Windows strategy in his Keynote speech. Commissioner Piwowar stated that given the increasing complexity of the laws and rules that govern the securities industry,

a “broken windows” approach to enforcement may not achieve the desired result.  If every rule is a priority, then no rule is a priority.  If you create an environment in which regulatory compliance is the most important objective for market participants, then we will have lost sight of the underlying purpose for having regulation in the first place. Rather than enabling vital and important economic activity, we will have unnecessarily shackled it – and our country will be far worse off from the absence of such activity.

Commissioner Piwowar emphasized that in his view, the SEC's enforcement efforts should be closely aligned with the priorities developed by the agency's policy-making divisions. He urged "thoughtful application of investigative discretion" by the staff of the Enforcement Division, and stressed that it is important for the SEC's senior leadership to "provide appropriate guidance so that the nearly 1,300 employees in the Division of Enforcement can use our enforcement authority to achieve desired outcomes."

Commissioner Piwowar also criticized the SEC's longstanding practice of measuring its enforcement efforts by metrics such as the total number of cases brought or the amount of monetary sanctions in a given year. He urged the Commission to re-think how it evaluates and describes the effectiveness of its enforcement program, and to instead focus on "measuring outcomes, not outputs." He stated that 

Most Americans would be outraged if we measured the effectiveness of traffic safety efforts primarily based on the number of tickets issued by police officers and the amount of monetary fines collected.  Rather, we look to a more important metric – whether the number of deaths from traffic accidents has increased or decreased.

The full text of Commissioner Piwowar's October 14 speech is available here.

 

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