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“SEC Empowers More Staff to Launch Investigations,” Investment News

February 10, 2021

The change puts pressure on firms’ compliance operations, experts say. Facilitating the ability of SEC staff to issue subpoenas and take testimony is expected to make enforcement more agile and effective.

A decision by the Securities and Exchange Commission to allow more of the agency’s staff to launch investigations will put more demands on financial firms’ compliance operations, experts said.

In a statement Tuesday, SEC Acting Chair Allison Herren Lee said she had restored the ability of senior enforcement officers to approve a formal order investigation and to authorize staff to subpoena documents and take testimony. She said the wider delegation of commission authority would enable SEC investigators to act more quickly to detect and stop fraud.

Lee put back in place a policy that existed under the chairmanships of Mary Schapiro and Mary Jo White during the Obama administration. The delegated authority was removed during the Trump administration. The five-person SEC has a political majority that reflects the party in power in the White House.

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The recent trading explosion in GameStop and other stocks of faltering companies has raised potential investor protection issues that the SEC says it is reviewing. The GameStop frenzy blew up quickly and demonstrates why SEC enforcement needs to be nimble, said Laura Posner, a partner at Cohen Milstein Sellers & Toll. “People trade in nanoseconds, and agencies that oversee these markets need to be able to move quickly,” said Posner, a former New Jersey Securities Bureau chief. 

Pushing key enforcement decisions down from the commission to the staff level helps achieve that goal. “When everything has to be approved by someone at the top, it takes longer, it slows down the process and, quite frankly, makes it more political,” Posner said.

Although Lee is temporarily the SEC chair, her decision to empower enforcement is a harbinger of what is likely to come under Gary Gensler, who has been nominated by the Biden administration to chair the commission. “It reflects interest in going back to a more enforcement-centric commission that is focused on rectifying harm to investors as soon as possible,” Posner said.

The SEC brought 405 stand-alone enforcement actions in fiscal 2020, which was down from 526 in fiscal 2019 and the lowest since fiscal 2015, according to agency statistics. But then-SEC Chairman Jay Clayton touted the agency’s ability in fiscal 2020 to obtain a record amount of monetary remedies despite agency staff working remotely as a result of the coronavirus pandemic.

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