by T. GormanPosted on Posted in SECActions

SEC Commissioner Paul Atkins recently called for the formation of a “new ‘Wells-like’ advisory committee to review the policies and procedures of our enforcement program. The Commission and the staff should welcome, not fear, such a review.” Remarks at the Eighth Annual A.A. Sommer, Jr. Corporate, Securities and Financial Law Lecture, October 9, 2007 (the full text of Commissioner Atkins’ comments can be viewed here). 

The purpose of this Committee would be much the same as the original Wells Committee formed in 1972. According to then-Chairman Casey, that Committee was formed because it is “essential for the Commission to redouble its efforts to keep in touch with the best thinking on investor protection at the private bar, in the accounting profession, and in the financial community generally.”

Chairman Casey’s comments are as true today as they were when he made them thirty-five years ago – perhaps even more so. Today, the Division of Enforcement faces continued, difficult challenges. While the staff of that division has and continues to serve with distinction, working tirelessly to carry out its mission, a breath of fresh air and an induction of new ideas would serve to continue propelling it forward and continue its critical mission. This is particularly true now in the wake of various reports calling for reform and more. The recent GAO and Senate reports, for example, both point to a need for reform and improvement.

The recommendations of those reports are fortified by a review of cases brought by the Division. Despite many significant successes, some recent cases brought by the Division are years old – to the point of being stale. In other instances, courtroom losses such as the one in SEC v. PacketPort.com, Inc., Civil Action No. 3:05cv1747 (D. Conn. Filed November 16, 2005), discussed here last week, serve point to the obvious need for a new look and fresh ideas.

The mandate of this new Committee should be forward looking and not respective. Its charge should be to seek out the best ideas to assist the Division and the Commission as it moves forward to meet the increasing challenges of tomorrow, not to be critical of the past. In view of the critical and daunting mission of the Enforcement Division and its role in safeguarding the nation’s capital markets, we should demand no less. Hopefully, Commissioner Atkins’ call for new advisory committee on enforcement procedures will be quickly heeded.

by T. GormanPosted on Posted in SECActions

This is the first part of an occasional series on the renewed emphasis on insider trading by the Securities and Exchange Commission and the Department of Justice. 

While insider training has always been a staple of the enforcement program, the recent emphasis on detecting and prosecuting it today rivals the efforts of the 1980s.  Then, the SEC and DOJ brought cases which captured the headlines in a manner similar to those grabbed by the recent corporate scandals such as Enron, Worldcom and others.

The renewed emphasis may stem in part from reports around the globe of rampant insider trading.  Markets in the UK, China, Japan, South Korea, Australia and Canada for example, have all reported significant increases in insider trading.  Last fall, Congress held hearings on insider trading.  In a recent report inquiring into a whistle-blower claim from a former SEC staff member, a Senate committee directed that the agency focus more resources on insider trading.

All of this increased activity has spurred regulators to band together in an effort to eradicate the perceived increasing tide of illegal trading.  The SEC is part of those world-wide efforts.  At the same time, the agency has joined with domestic regulators as part of its efforts.

The SEC has new initiatives focused on detecting insider trading.  For example, in September 2006, the Commission launched an unprecedented sweep of Wall Street focused on the trading activities of major Wall Street brokers and banks and hedge funds.  Enforcement Chief Linda Thomsen has repeatedly cautioned executives trading through Rule 10b5-1 plans that their safe harbor may no longer be safe.  This past August, the SEC circulated a letter to hedge funds requesting what many view as an unprecedented amount of information about employees and clients in a position to acquire inside information in an apparent effort to profile prospective violators. 

Despite intensified efforts, detection remains difficult and proof may be daunting.  Frequently, the evidence is circumstantial, implied from what may be viewed as “suspicious trading” because of its timing or size.  At the same time, that suspicious trading is not proof of illegal activity and may be the result of shrewd market observation and analysis which actually contributes to market efficiency.

To examine the renewed emphasis on insider trading we will examine recent SEC and DOJ cases in seven areas:

1.         Major Wall Street players;

2.         Trading prior to corporate announcements;

3.         Pillow talk cases;

4.         Spouse v. spouse;

5.         Family and friends;

6.         Corporate executives; and

7.         Attorneys.

After examining these areas, we will assess the new insider trading programs.

Next:  Major Wall Street Players:  A return to the “Den of Thieves?”