SEC CHAIR WHITE'S SPEECH AT NYC BAR ASSOCIATION'S WHITE COLLAR CRIME INSTITUTE

SPEECH

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Three Key Pressure Points in the Current Enforcement Environment

Chair Mary Jo White

NYC Bar Association’s Third Annual White Collar Crime Institute 
New York, NY

May 19, 2014

Introduction

Thank you, John Savarese, for that kind introduction.  It is great to be here with you in New York.  This is the City Bar Association’s Third Annual White Collar Crime Institute.  It is always a terrific program and I am honored to be to kicking off this year’s event.  As I look out at the audience and see so many familiar faces that I have worked with over the years, I am reminded of the extraordinary talent and professionalism that you bring to the white collar bar.

With an audience as experienced as this, I thought I would try to give you a nuanced view of some of the more significant issues or pressure points that we all face in the current enforcement environment.  While these issues are not all new, and are not confined to the SEC space, I will address three of these pressure points through my lens as the Chair of the SEC: (1) the pressure of multiple regulators in the same or overlapping investigations; (2) the decision to charge individuals, entities, or both; and (3) the range of remedies and ultimate resolutions.

Three Key Pressure Points in Securities Law Enforcement

The contours and progression of many of today’s most significant securities enforcement cases will be determined first, by which authorities are participating in the investigation – domestic or international, federal or state, civil or criminal, and in what combination.  The second main axis is whether the authorities are focused on individual or entity liability, or both.  And third, in addition to monetary relief, regulators today use a range of potential remedies and types of resolutions, and I will discuss some of the ones that we at the SEC are increasingly focused on.  Although a multitude of other issues arise in every securities investigation, these three pressure points largely determine the outcomes in most investigations.

Which Regulators Are Involved

The first variable is which regulators are, or are likely to be, involved.  The answer, of course, will depend on the nature of the alleged conduct as well as the jurisdiction and interest of regulators and prosecutors.  And the number and type of regulators involved will define the range of possible outcomes, and dictate the kind of advice you will give clients. 

When I first went back into private practice in 2002, investigations were often conducted by one, maybe two, regulators.  Frequently, investigations were conducted in parallel by the SEC and criminal authorities, as they are today.  But usually, that was it.  Now, it is common to have investigations with more – sometimes many more – than two regulators, whether they are additional federal regulators, state prosecutors, attorneys general, or foreign regulators.  There are many reasons for this, including: the internationalization of enforcement; the global nature of many of today’s securities frauds; the increased regulatory activity on the state level; and the increased complexity of our markets.

So, with numerous regulators with overlapping mandates to investigate any given potential case, how do we stay in our lanes?  Or is it inevitable that we overcrowd every domestic and international highway on today’s enforcement landscape?

Of course, each agency makes its own decision about which investigations to pursue, thus leading to a crowded highway in many investigations.  Enforcers may perceive that outcome as both necessary and desirable if their mandates are to be strongly implemented and their messages heard.  From my perch at the SEC, I surely have that inclination, wanting us to be involved in any matter that touches our jurisdiction, so that we can shape the outcome in a way that is consistent with our view of the law and appropriate conduct.

But, at the same time, we regulators need to keep in mind the impact we have on those we regulate and ensure that our own respective interests do not lead to unjust, duplicative outcomes.  Especially in an era of scarce resources, regulatory choices and coordination are critical.  Each agency should make a frank assessment of whether it brings the right expertise, jurisdictional authority, and appropriate remedies to the table.

There are actually some coordination successes we can point to and build upon.  For example, in the FCPA area, the SEC and DOJ, and frequently other international regulators, have a long history of coordinating effectively, to the point that the SEC and DOJ jointly developed the “Resource Guide” that closely examines the SEC and DOJ approach to FCPA enforcement.[1]  In the typical case, the SEC and DOJ will investigate in parallel from the outset, and if the matter settles, the SEC usually obtains the disgorgement as part of its resolution and DOJ obtains the penalty.[2]  This division of labor and remedies achieves full accountability without regulatory “double dipping.”

Similarly, when we do parallel insider trading cases with DOJ that settle, we typically require disgorgement of the profits or losses avoided, plus a one-time penalty, while the criminal authorities will obtain prison sentences.  When there is a criminal fine as well, we assess whether our penalty is also necessary.  Such sorting out of appropriate remedies is important in the current multiple regulator landscape.

Collectively, we should also try to avoid unnecessary competition among ourselves for cases and headlines.  While I realize we may not always achieve this goal in practice, enforcement is serious business and we have a professional responsibility to use our agency resources wisely and in a manner that best applies our specific expertise and enforcement tools.  And there is never room for anything other than a thorough investigation of all the evidence – wherever and to whomever it may lead.  Rushes to judgment or to the courthouse can potentially result in both injustices and charges that may not capture all of the culpable parties or misconduct.

Of course, there is often good reason for conducting criminal and regulatory investigations in parallel.  In appropriate cases, we need to rely on our criminal law enforcement colleagues, who have the power to jail, to work with us.[3] But what does and should determine whether a securities fraud case is brought civilly, criminally, or both?

It may help to think about the cases in three categories.  The first are those that do not involve intentional wrongdoing, but rather failures of controls or reporting obligations.  These cases fall squarely within the SEC’s wheelhouse and will rarely, if ever, be brought criminally.  Examples include failure to supervise cases; violations of broker-dealer rules like the market access rule, Rule15c3-5[4]; cases involving unprofessional, but not fraudulent, audits; failures of investment advisers to follow compliance rules[5]; or violations by exchanges of their own rules.[6]  These are important cases that influence conduct in the industry and ensure a significant focus on compliance and controls.  But they are not criminal cases because the misconduct rarely involves intent.

The second category of cases are those that clearly have a criminal component – those involving egregious, fraud-based conduct with a strong evidentiary trail.  These cases are often the most sophisticated frauds causing significant investor harm, brazen attempts to steal money through offering frauds or Ponzi schemes, or blatant frauds on the markets through insider trading.[7]  There is no ambiguity in these cases – egregious conduct deserves the severe sanction of imprisonment, and often in these cases, the criminal authorities are participants in the investigation from the beginning.

The third category – the most difficult to define – are those on the line, where a criminal case is possible but not necessarily apparent on the face of the conduct. Often, such cases rely on prosecutors ready to bring cases where the evidence is not overwhelming but is sufficient to find the offense beyond a reasonable doubt.  It is often in these cases that the criminal authorities monitor the SEC investigations to determine whether sufficient evidence has developed to justify criminal interest.  And it is in these cases that we at the SEC must maintain open channels of communication with the criminal authorities to determine whether they have sufficient interest in the matter to participate in interviews of witnesses and other evidence gathering exercises.

The bottom line is that the decision of whether a case will go criminal will typically turn on the strength of the evidence and the type of offense under investigation – which are the appropriate factors to consider in making such a determination. 

What Defendants Are Being Charged

Irrespective of which and how many investigators you face, the second decision point in nearly every securities enforcement investigation is who will be charged as a defendant – a decision that again is, and should be, dictated by the nature of the misconduct and strength of the evidence.  Let me talk a bit about this second pressure point in SEC investigations.

A Focus on Individuals

First, I want to dispel any notion that the SEC does not charge individuals often enough or that we will settle with entities in lieu of charging individuals. 

The simple fact is that the SEC charges individuals in most of our cases, which is as it should be.  A recent Harvard survey shows that since 2000, the SEC has charged individuals in 93% of our actions involving nationally listed firms in which we charged fraud or violations of books and records and internal control rules.[8]  An internal, back-of-the envelope, analysis the staff did recently indicates that since the beginning of the 2011 fiscal year, we charged individuals in 83% of our actions.[9]   Under either calculation, those percentages are very high – which means that the cases where individuals are not charged are by far the exception, not the rule. 

I expect that this is probably not news to most of you who have had individual clients charged by the SEC.  It should also not be a surprise that we focus our investigations initially on the individuals closest to the wrongdoing and work outward and upward from there to determine who else should be charged, including whether to charge the corporation.  A company, after all, can only act through its employees and if an enforcement program is to have a strong deterrent effect, it is critical that responsible individuals be charged, as high up as the evidence takes us.  And we look for ways to innovate in order to further strengthen our ability to charge individuals. 

What Is Old Is New

One new approach to charging individuals is to use Section 20(b) of the Exchange Act.  Although this section dates back to the original Exchange Act of 1934, chances are you may not be very familiar with it because, frankly, it has not been a common charge.  Before you start reaching for your smart phones to look it up, let me save you the trouble.  Section 20(b) imposes primary liability on a person who, directly or indirectly, does anything “by means of any other person” that would be unlawful for that person to do on his or her own.[10]  This is analogous in the criminal context to 18 U.S.C. Section 2(b), which provides for criminal liability as a principal for anyone who “willfully causes an act to be done which if directly performed by him or another would be” a criminal violation.[11]

We are focusing on Section 20(b) charges where – as is frequently the case in microcap and other frauds – individuals have engaged in unlawful activity but attempted to insulate themselves from liability by avoiding direct communication with the defrauded investors.  It is potentially a very powerful tool that can reach those who have participated in disseminating false or misleading information to investors through offering materials, stock promotional materials, or earnings call transcripts, but who might not be liable under Rule 10b-5(b) following the Supreme Court’s decision in Janus because they may not be the “maker” of the statement.[12]

Just as importantly, though, as with 18 U.S.C. Section 2(b), Exchange Act Section 20(b) is a form of primary liability, rather than secondary liability, which would require proof of a separate violation by someone other than the defendant.  So, we can use Section 20(b) where aiding and abetting or controlling person theories may fall short because there is no underlying violation by someone else, such as, for example, when the other person who publicly makes the misleading statements lacks knowledge that they were misleading.

The Importance of Corporate Liability

Of course, emphasizing regulatory scrutiny for individuals in no way diminishes the need to hold corporations accountable.  Strong deterrence requires both because the law rightly places responsibility on the corporation for its employees’ wrongful conduct and it is often the corporate and compliance culture, or lack thereof, that fosters or fails to prevent the wrongdoing. 

At times, because of the diffuse ways in which many large entities operate today, uncovering sufficient evidence to hold individuals accountable can be difficult.  In those situations, we have not shied away from charging only the corporation.[13]   The wrongdoing does not require scienter or even negligence – the company violates the law by failing to comply with the applicable regulatory requirement.

Corporate Negligence

The Commission has also charged entities, but not their employees, with negligence-based violations of the antifraud provisions of the securities laws.[14]  Charging a corporation with negligence-based fraud where we do not charge an individual – because the proof of negligence against the individual may fall short – is not something we undertake lightly, but is solidly grounded in the law and is an important tool in our enforcement arsenal. 

Assessing whether a corporation acted negligently involves comparing a corporation’s conduct, as carried out through its employees, to the actions of a reasonable corporation in similar circumstances – without the need to impute a particular state of mind from an individual to the corporation, as is required for scienter-based violations.  In practice, charging only corporations with negligence can be appropriate when an entity makes a material misstatement or omission in the offer or sale of securities and the evidence will not support holding any individual responsible.  In those cases, holding the entity responsible for the misstatements is the right thing to do if the evidence demonstrates that the entity’s conduct fell below the standard of reasonable care – for example, because it failed to have appropriate policies or procedures, failed to properly train its employees, or failed to structure its operations so that people making disclosure decisions are provided with the necessary information to make those decisions on an informed basis.[15]

Such charges achieve accountability for the wrongdoing uncovered in the investigation and allow recovery of disgorgement and penalties that may be returned to harmed investors. 

Intentional Corporate Wrongdoing

Before we leave the subject of charging entities, we should probably spend just a couple of minutes on the controversy du jour related to criminal charges against corporations – the “too big to jail” – or more accurately – the “too big to indict and convict” debate.  I won’t, of course, discuss any particular cases or investigations, but I will share four quick thoughts with you from my perspective as both a civil regulator and former United States Attorney.

First is the threshold question of whether any financial institution is too big to charge.  At the SEC, of course, as you know from our cases, no firm is too big to charge.  Their size and complexity does not even enter into our charging analysis, and so we can put aside the threshold question in SEC cases.[16]

But is any company or financial institution too big to indict criminally?  The answer is also no.  We criminally charged financial institutions and other companies several times when I was U.S. Attorney – Daiwa Bank, Republic Securities, and Bankers Trust, as well as Con Edison.[17]  And other prosecutors have done the same.  My predecessor charged Dexel Burnham Lambert with securities fraud,[18]  and more recently subsidiaries of the Royal Bank of Scotland and UBS have been charged and pled guilty to charges stemming from LIBOR manipulations.[19]  And these are just a few of the examples.  So, no – no corporate entity is too big or too complex to indict.

Second, some have questioned whether it is appropriate for prosecutors to consider the consequences – direct and collateral – when they make a decision whether to indict a company.  Of course they should; we want their decision to be thoughtful and in the public interest.  And DOJ’s Principles of Federal Prosecutions of Business Organizations indeed require them to weigh the collateral consequences of a corporate indictment among a number of other factors.[20]

That prosecutors consider such consequences does not, however, dictate a declination even when the likely collateral consequences are very significant, or even potentially fatal.  For example, Drexel was indicted, pled guilty, and about a year later went out of business; Daiwa Bank, one of my cases as U.S. Attorney, was indicted, eventually pled guilty, and lost its license to do business in the United States. [21]   

Of course, not every indictment of a corporation is fatal or results in the loss of licenses.  The last couple of years have seen GlaxoSmith Kline plead guilty to criminal FDA labelling and reporting violations, Siemens AG plead guilty to criminal and civil FCPA violations, and a U.S. subsidiary of BP plead guilty to manslaughter and criminal environmental charges for the Deepwater Horizon spill.[22]  While each of these companies paid heavy penalties and engaged in extensive remediation of their compliance systems, each has also continued in business.

Third, it has been asked whether it is appropriate for prosecutors to discuss with banking, securities, and other regulators the possible regulatory consequences of a corporate indictment.  Again, the answer is yes.  Responsible prosecutors will want to understand the full implications of their actions and the regulators are often the only reliable sources for understanding those potential consequences.

Fourth, regulators whose powers may be implicated by the indictment or conviction of a regulated entity may be called upon to make their quite separate decisions about the consequences flowing from the corporate charge.  It is important in such instances for the regulators to make their decisions independently, rigorously, and based on their specialized regulatory knowledge.  They should neither regard their role as an adjunct to the criminal case to add another penalty nor to make regulatory decisions that “cushion” the blow of the criminal action taken or pave the way for a consequence-less guilty plea.  Rather, regulators should rigorously apply the standards of their own regulations to the facts and circumstances of each case and reach an independent determination of the applicable regulatory consequences as a result of the particular enforcement action that has been taken.  Often, the question for regulators is forward-looking – can and should the convicted company continue to participate in a government program or to rely on certain regulatory regimes for future activity. 

These decisions are extremely important ones.  They need to be made on the merits by clear-eyed regulators applying the criteria in their rules to each such decision before them.  

Determining the Appropriate Resolution

Let me get back to doing my current day job and talk very briefly about the third pressure point in today’s enforcement landscape, which is the all-important question of remedies and the terms of an ultimate resolution.  Time does not permit a full discussion, but let me share a bit about our current thinking on some of the non-monetary remedies and resolutions we are currently emphasizing at the SEC – the use of bars, monitors, and admissions.

One the SEC’s most powerful non-monetary remedies to protect the public from future harm is our authority to bar wrongdoers who work in the industry or appear before the SEC.  And I have encouraged our Enforcement Division to increase the use of these bars in appropriate cases and to ensure that we obtain bars for periods of time that respond to the seriousness of the misconduct.

We have also been more focused on seeking and obtaining undertakings requiring the use of monitors or independent compliance consultants, and doing so in a way that directly addresses the root causes of the misconduct.  Ensuring that defendants address their deficiencies and implement corrective actions is critical to making sure that our actions protect investors from future harm.[23]

Another popular tool we have implemented since I became Chair is to require admissions of wrongdoing in certain cases.  As I have described before, we seek admissions in cases where there is a heightened need for public accountability or for the investing public to know the unambiguous facts.  And, we have now

required admissions in a number of significant cases.[24]  Expect to see more as we go forward and the new protocol evolves.

Conclusion

Let me stop here.  I hope I have provided you with some insights into the current securities enforcement landscape.  Strong enforcement is at the core of the SEC’s mission to protect investors and our markets.  In each step of the enforcement process, we remain focused on aggressively pursuing wrongdoing – whether individual or corporate – working cooperatively with our fellow regulators, and sending strong messages of deterrence within the range and full reach of our legal authority and tools.

Thank you.

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[1] Available at http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf.

[2] See “SEC Charges Hewlett-Packard With FCPA Violations,” Rel. No. 2014-73 (April 9, 2014), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541453075; “SEC Charges Total S.A. for Illegal Payments to Iranian Official,” Rel. No. 2013-94 (May 29, 2013),available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575006.

[3] SEC Chair White Keynote Address “All-Encompassing Enforcement: The Robust Use of Civil and Criminal Actions to Police the Markets,” SIFMA Compliance & Legal Society Annual Seminar (March 31, 2014) available athttp://www.sec.gov/News/Speech/Detail/Speech/1370541342996.

[4] See “SEC Charges Knight Capital With Violations of Market Access Rule,” Rel. No. 2013-222 (Oct. 16, 2013).

[5] See See “SEC Charges Owner of N.J.-Based Brokerage Firm With Manipulative Trading,” Rel. No. 2014-67 (April 4, 2014); “In the matter of Sam Kan, CPA, et al,” Rel. No. 34-75185 (Feb. 20, 2014) available at: http://www.sec.gov/litigation/admin/2014/34-71585.pdf ; “In the matter of Agamas Capital Management, L.P.,” Rel. No. IA-3719 (Nov. 19, 2013) available at: http://www.sec.gov/litigation/admin/2013/ia-3719.pdf.

[6] See “SEC Charges NYSE, NYSE ARCA, and NYSE MKT for Repeated Failures to Operate in Accordance With Exchange Rules,” Rel. No. 2014-87 (May 1, 2014).

[7] See, e.g., “SEC Charges ConvergEx Subsidiaries With Fraud for Deceiving Customers About Commissions,” Rel. No. 2013-266 (Dec. 18, 2013) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540521484; “SEC Charges Woman and Stepson for Involvement in ZeekRewards Ponzi and Pyramid Scheme,” Rel. No. 2013-270 (Dec. 20, 2013) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540530681; “SEC Charges Hedge Fund Firm CR Intrinsic and Two Others in $276 Million Insider Trading Scheme Involving Alzheimer's Drug,” Rel. No. 2012-237 (Nov. 20, 2012) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171486118.

[8] See http://blogs.law.harvard.edu/corpgov/2013/09/03/sec-practice-in-targeting-and-penalizing-individual-defendants/.  The study further reveals that the SEC named CEOs in 56% of those cases, CFOs in 58% of cases, and lower level executives in 71% of cases.

[9] This figure excludes delinquent filings cases and “follow-on” administrative proceedings, where the Commission seeks bars following the entry of an injunction or criminal conviction.

[10] 15 U.S.C. § 78t(b) (Securities Exchange Act § 20(b)).  Similar provisions exist in the Investment Advisers Act and the Investment Company Act.  See 15 U.S.C. § 80a-47(Investment Company Act § 48(a)), 15 U.S.C. § 80b-8(d) (Investment Advisers Act § 208(d)).

[11] 18 U.S.C. § 2(b).

[12] Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2304 n.10 (2011).

[13] See, e.g., “SEC Charges Lions Gate With Disclosure Failures While Preventing Hostile Takeover,” Rel. No. 2014-51 (March 13, 2014) available at:http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541123111;

 “In the matter of ABN AMRO Bank, N.V.,” Rel. No 34-70086 (July 31, 2013) available at:https://www.sec.gov/litigation/admin/2013/33-9437.pdf;  “SEC Charges Three Firms With Violating Custody Rule,” Rel. No. 2013-230 (Oct. 28, 2013) available at:http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540098359; “SEC Charges Institutional Shareholder Services in Breach of Clients' Confidential Proxy Voting Information,” Rel. No. 2013-92 (May 23, 2013) available at:https://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171574952

[14] See, e.g., “SEC Charges New York-Based Brokerage Firm for Ignoring Red Flags in Soft Dollar Scheme,” Rel. No. 2013-273 (Dec. 26, 2013) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540557746;  “SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering,” Rel. No. 2013-239 (Nov. 7, 2013) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540300002; “OppenheimerFunds to Pay $35 Million to Settle SEC Charges for Misleading Statements During Financial Crisis,” Rel. No. 2012-110 (June 6, 2012) available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171482524

[15] See, e.g., “SEC Charges Royal Bank of Scotland Subsidiary with Misleading Investors in Subprime RMBS Offering” Rel. No. 2013-239 (Nov. 7, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540300002; “In the Matter of Apple REIT Six, Inc., et al.,” Rel. No. 34-71546 (Feb. 12, 2014), available athttp://www.sec.gov/litigation/admin/2014/33-9548.pdf.

[16] E.g. “SEC Charges CVS With Misleading Investors and Committing Accounting Violations,” Rel. No. 2014-69 (April 8, 2014) (CVS is a Fortune 15 company); “SEC Charges TD Bank and Former Executive for Roles in Rothstein Ponzi Scheme in South Florida,” Rel. No. 2013-192 (Sept. 23, 2013) (TD Bank is the 10th largest bank in the country). Information on actions the SEC brought against the world’s largest financial institutions that led to or arose from the financial crises may be found at http://www.sec.gov/spotlight/enf-actions-fc.shtml.

[17] See P. Truell, “Daiwa Bank Admits Guilt in Cover-Up,” New York Times (Feb. 29, 1996),available at http://www.nytimes.com/1996/02/29/business/daiwa-bank-admits-guilt-in-cover-up.html; K. Gilpin, “Republic New York Pleads Guilty to Securities Fraud,” New York Times (Dec. 18, 2001), available at http://www.nytimes.com/2001/12/18/business/republic-new-york-pleads-guilty-to-securities-fraud.html; R. Abelson, “Bankers Trust Is Ordered To Pay Fine,” New York Times (July 27, 1999), available athttp://www.nytimes.com/1999/07/27/business/bankers-trust-is-ordered-to-pay-fine.html; R. Sullivan, "Con Ed Admits to Conspiracy To Cover Up Asbestos in Blast," New York Times (Nov. 1, 1994), available at http://www.nytimes.com/1994/11/01/nyregion/con-ed-admits-to-conspiracy-to-cover-up-asbestos-in-blast.html

[18] S. Labaton, “Drexel, as Expected, Pleads Guilty to 6 Counts of Fraud,” New York Times (Sept. 12, 1989) available at http://www.nytimes.com/1989/09/12/business/drexel-as-expected-pleads-guilty-to-6-counts-of-fraud.html.

[19] Press Release No. 13-161, RBS Securities Japan Limited Agrees to Plead Guilty in Connection with Long-Running Manipulation of Libor Benchmark Interest Rates (Feb. 6, 2013), available at http://www.justice.gov/opa/pr/2013/February/13-crm-161.html; Press Release No. 12-1522, UBS Securities Japan Co. Ltd. to Plead Guilty to Felony Wire Fraud for Long-running Manipulation of LIBOR Benchmark Interest Rates (Dec. 19, 2012), available at http://www.justice.gov/opa/pr/2012/December/12-ag-1522.html.

[20] United States Attorneys’ Manual, Title 9, Chapter 28, available athttp://www.justice.gov/opa/documents/corp-charging-guidelines.pdf.  

[21] K. Eichenwald, “The Collapse of Drexel Burnham Lambert; Drexel, Symbol of Wall St. Era, Is Dismantling; Bankruptcy Filed,” New York Times, February 14, 1990; P. Truell, “Daiwa Bank Admits Guilt in Cover-Up,” New York Times, February 29, 1996.

[22] Press Release No. 12-842, “GlaxoSmithKline to Plead Guilty and Pay $3 Billion to Resolve Fraud Allegations and Failure to Report Safetyhttp://www.justice.gov/opa/pr/2012/July/12-civ-842.html; Press Release No. 08-1105, “Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines” (Dec. 15, 2008), available athttp://www.justice.gov/opa/pr/2008/December/08-crm-1105.html; Press Release No. 12-1369, “BP Exploration and Production Inc. Agrees to Plead Guilty to Felony Manslaughter, Environmental Crimes and Obstruction of Congress Surrounding Deepwater Horizon Incident,” (Nov. 15, 2012), available at http://www.justice.gov/opa/pr/2012/November/12-ag-1369.html.

[23] See “In the Matter of G-Trade Services LLC, et al.,” Rel. No. 34-71128 at p.12 (Dec. 18, 2013) available at: http://www.sec.gov/litigation/admin/2013/34-71128.pdf.

[24] See, e.g., “Philip Falcone and Harbinger Capital Agree to Settlement” Rel. No. 2013-159 (Aug. 19, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539780222; “JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges,” Rel. No. 2013-187 (Sept. 19, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539819965; “SEC Charges ConvergEx Subsidiaries With Fraud for Deceiving Customers About Commissions,” Rel. No. 2013-266, (Dec. 18, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540521484; “Scottrade Agrees to Pay $2.5 Million and Admits Providing Flawed “Blue Sheet” Trading Data,” Rel. No. 2014-17 (Jan. 29, 2014), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540696906; “Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients,” Rel. No. 2014-39 (Feb. 21, 2014), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540816517; “SEC Charges Lions Gate With Disclosure Failures While Preventing Hostile Takeover,” Rel. No. 2014-51 (March 13, 2014), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541123111; N. Raymond & J. Stempel, “Wyly brothers' ex-lawyer settles SEC fraud case, admits errors,” Reuters (Mar. 20, 2014), available at http://www.reuters.com/article/2014/03/20/us-sec-wyly-lawyer-idUSBREA2J2A020140320.

SEC CHAIR WHITE'S SPEECH AT ANNUAL SECURITIES REGULATION INSTITUTE

The SEC in 2014

 Chair Mary Jo White

41st Annual Securities Regulation Institute
Coronado, Calif.

Jan. 27, 2014

This keynote address is named in honor of Alan B. Levenson. Alan was a co-founder of this Institute and a true legend of the securities bar. He served with great distinction as a private practitioner, academic and, from 1970 to 1976, as the SEC’s sixth Director of the Division of Corporation Finance. It was his vision to bring the best of the private bar and SEC staff together yearly on the West Coast to share perspectives, rightly believing that talking face-to-face would result in a better understanding of the need and optimal way to protect investors and enable our capital markets to safely thrive. This Institute is a living tribute to Alan Levenson and I am privileged to speak to you today in his honor.

It is great to be back at the Institute. I was scheduled to be here last year for the enforcement panel, as I have been for about ten years, but I was called to Washington where the President announced my nomination as the 31st Chair of the Securities and Exchange Commission. It seemed like a good enough reason to cancel – well, it did at the time.

My first appearance at the Institute was in 1998 when I was also asked to give the keynote address. I was the United States Attorney for the Southern District of New York at the time and the title of my remarks was “White Collar Crime: No Place for Timidity.” In 2001, I was asked again to make the keynote address and spoke about the importance of companies’ compliance programs.

Fast forward to today and I am now privileged to return to the Institute and occupy the seat that David Ruder so successfully held from 1987 to 1989, as Chairman of the SEC. While I talk about a lot of other things these days, I still also talk about the importance of strong enforcement and robust compliance programs. One might say the more things change the more they stay the same – or do they?

For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.

That is our three-part mission.

But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.

When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.

It is because we operate in this vast, fast, and ever-evolving securities market that the Commission, as the regulator of that market, must constantly adapt in order to continue to be effective.

With that in mind, I thought I would speak this morning about some of the transformative changes at the SEC in 2014 and, while doing that, also preview a few of the specific rulemakings and other initiatives that I expect to be on our 2014 agenda.

Evolving with Market Technology

While there have been many significant changes since the SEC’s inception, few have had as much impact on our markets as the advances in technology. The manual trades on the exchange floor of the 1930s have given way to trading that is high-tech, high-speed, and widely dispersed among many different venues, some of which did not even exist when I last gave this address, but which now occupy significant parts of the market landscape.

And that landscape changes and evolves further every day.

It is not only our job to keep pace with this rapidly changing environment, but, where possible, also to harness and leverage advances in technology to better carry out our mission.

And, despite significant resource challenges, we are doing precisely that across the agency. Let me give you a few examples.

NEAT

Our Quantitative Analytics Unit in our National Exam Program has, for example, developed a revolutionary new instrument called “NEAT,” which stands for “National Exam Analytics Tool.”

With NEAT, our examiners are able to access and systematically analyze massive amounts of trading data from firms in a fraction of the time it has taken in years past. In one recent exam, our exam team used NEAT to analyze in 36 hours literally 17 million transactions executed by one investment adviser.

Among its many uses, NEAT can search for evidence of potential insider trading by comparing a database of significant corporate activity like mergers against the companies in which a registrant is trading and analyze how the registrant traded at the time of those significant events. NEAT can review all the securities the registrant traded and quickly identify the trading patterns of the registrant for suspicious activity.

In 2014, our examiners will be using the NEAT analytics to identify signs of not only possible insider trading, but also front running, window dressing, improper allocations of investment opportunities, and other kinds of misconduct.

MIDAS

This past year, we also brought on-line another transformative tool that enables us to collect and sift through massive amounts of trading data across markets instantaneously, an exercise that once took the staff weeks or months. We call this technology MIDAS – the Market Information Data Analytics System.

Every day, MIDAS collects one billion records of trading data, time-stamped to the microsecond. Previously, only sophisticated market participants had access to this type and amount of trading data and even fewer were able to process it. At the SEC of 2014, we are aggregating this data and presenting it on our website along with a wide range of analyses. We have made these analyses readily accessible on your computer or even your tablet, with data available in clear, easy-to-read charts and graphs.

MIDAS is already revealing some important, data-based realities that may resolve some of the speculations about behavior in today’s market structure. Just earlier this month, for example, the SEC staff published an analysis showing that for the most part the advent of public transparency for “odd lot” trades does not seem to correspond with a decline in such trades.[1] The staff noted that this result suggests that a lack of transparency may not have been one of the drivers for breaking trades into odd lots, which some observers have suggested is a technique to hide trading activity.

In the coming weeks, we are expecting to post further staff analysis of off-exchange trading, a review of research on high-frequency trading, and a data series on depth-of-book liquidity. I encourage you, after my remarks, to take a look at all of this – right on sec.gov.[2] This is not your father’s SEC – or your mother’s or even your older brother or sister’s. In this rapidly changing environment, we must stay on top of advances in technology. NEAT and MIDAS are important tools that will help us keep pace with evolving technology.

Operational Integrity

Our approach to technology in 2014, however, is not limited to building systems like these for us to keep pace with the evolving technology of the markets. We are also focused on ensuring that the technology used by exchanges and other market participants is deployed and used responsibly in a way that reduces the risk of market disruptions that can harm investors and undermine confidence in the integrity of our markets.

Most recently, following the interruption of trading in Nasdaq-listed securities last August, I met with the leaders of the equities and options exchanges. At my urging, they pledged to work toward enhancing the integrity of market systems, including the critical market infrastructures that can prove to be “single points of failure,” such as public feeds of quotes and trades.[3]

They have since been working hard to develop and implement such measures, and I expect more to be done to address these vulnerabilities in 2014.

In addition, I anticipate that the Commission’s 2014 rulemaking agenda will include consideration of the adoption of Regulation SCI – which stands for Systems Compliance and Integrity.[4] As some of you know, Regulation SCI would put in place new, stricter requirements for the use of technology by exchanges, large alternative trading systems, clearing agencies, and securities information processors. Regulation SCI can be – and should be – the market-side counterpart to the intermediary-focused Market Access Rule adopted by the Commission in 2010 to better regulate how broker-dealers manage the technological and other risks associated with direct access to markets.[5]

Evolving with New Financial Products

OTC Derivatives

It is not just technology that has changed over the life of the agency. So too have the financial products that investors, businesses, and other market participants use.

In 1990, for instance, few people would have heard of a credit default swap or any of a number of the other products that make up today’s over-the-counter derivatives market. Yet two decades later, such derivatives comprise a multi-trillion dollar market.

The Dodd-Frank Act directed the SEC – for security-based swaps – and the CFTC – for all other swaps – to create an entirely new regulatory regime for this massive market.[6] Once this regime is fully in place, many over-the-counter derivatives will be traded and cleared on venues accessible by a wide range of market participants, with trade data made readily available to regulators and disseminated to the public. What was once an opaque, bilateral market will largely become a transparent, centrally cleared market.

The Commission has proposed substantially all of the rules required to implement this new regulatory framework.[7] With our proposal for the cross-border application of this framework last year,[8] I expect the Commission in 2014 to move forward with finalizing and implementing these rules.

Money Market Funds

Even when a product is not as new as an over-the-counter derivative, the use of the product may reveal previously unanticipated risks that suggest an evolution in our regulatory approach is warranted. The recent financial crisis provided an unwelcome laboratory for a number of these products.

Money market funds, for example, have for decades been an important part of the financial marketplace. As we saw in the financial crisis, however, they can be exposed to substantially heightened redemptions if investors believe that a fund is about to lose value. The resulting instability in their value can harm investors as well as the entities that turn to money market funds for financing.

In 2010, the SEC took a first step to address this heightened redemption risk by making the funds more resilient. The rule amendments adopted by the Commission in 2010 were designed to reduce the interest rate, credit, and liquidity risks of money market fund portfolios. The Commission said at the time that it would continue to consider whether further, more fundamental changes to money market fund regulation is warranted.[9]

Currently, the Commission is considering two significant proposals for additional reform that were put out for comment last June.[10] One is a floating NAV for prime institutional money market funds – the type of fund that experienced problems during the financial crisis. The other proposal would require money market funds under certain circumstances to impose a liquidity fee and permit the imposition of redemption gates. This proposal is designed to stop a “run” and limit the resulting instability. These proposals could be adopted alone or together.

We have received hundreds of letters on the proposals with a wide range of differing views that we are reviewing closely. Completing these reforms with a final rule is a critical priority for the Commission in the relatively near term of 2014.

Securitization

The financial crisis also revealed how another product – asset-backed securities – could create undue risks to market integrity and investors. Shortly after the financial crisis, the Commission proposed a new set of disclosure rules for asset-backed securities, which have evolved with the Dodd-Frank Act.[11] Finalizing these new disclosure rules remains an important priority for the Commission in 2014.

A related effort is the rules we are required to adopt jointly with several other agencies governing the retention of a specified amount risk by the sponsor of an asset-backed security. We re-proposed those rules late last year, and finalizing them will be a priority for 2014.[12]

Evolving with New Paths to Capital Formation

Just as we have seen market technology and products evolve over time, we also have seen massive change in the ease and speed with which information and capital flows. This, in turn, has led companies, investors, Congress, the SEC and others to reconsider how companies can seek capital and communicate with potential investors. Indeed, we are at the start of what promises to be a period of transformative change in capital formation.

In 2013, according to our estimates, capital raised in public offerings totaled $1.3 trillion, as compared to $1.6 trillion raised in offerings not registered with the SEC, with over 65% raised in new and ongoing Rule 506 offerings.[13] So the private offering markets already rival the public markets in terms of capital raised.

And, in 2012, Congress passed the JOBS Act, directing the Commission to implement rules that will have a significant impact on the private offering markets. I know you will be hearing a fair amount about this subject on your panels today, so let me provide just a brief overview of what the SEC will be working on in this space in 2014.

In July, the Commission adopted rules implementing the JOBS Act mandate to lift the ban on general solicitation, and the rules became effective on September 23, 2013.[14] Although existing Rule 506 continues to be a popular method for capital raising, issuers are taking advantage of the new rule. Preliminary information collected by our Division of Economic and Risk Analysis shows that through December 31, approximately 500 offerings were conducted, raising approximately $5.8 billion.

Then, in October and December of last year, the Commission proposed rules to implement the JOBS Act mandates with respect to crowdfunding and Regulation A.[15] While the final framework of these two exemptions is yet to be determined by the Commission, if the enthusiasm for them is any indication, I expect strong interest in raising capital through these mechanisms.

Together, these changes should provide new and expanded ways for companies of all sizes, but particularly smaller companies, to raise capital. The final implementation of crowdfunding and an updated Regulation A is an important priority in 2014, and I expect that the Commission, after thorough consideration of all comments, will move expeditiously to finalize these rules.

These rule changes for the private offering market are just the start of the Commission’s efforts. For the changes demand that the Commission stay focused on the ongoing implementation of the exemptions, what market practices develop, how much capital is being raised, how investors are impacted, and whether fraud or other misconduct is occurring in these markets.

So, staff from across the agency is also set to monitor the developments in the markets following all of these changes. An agency-wide working group has been formed to monitor offering practices and other developments in the Rule 506 market. I have also directed the staff to form similar working groups for both crowdfunding and the new Regulation A.

One key step in the effort to improve our monitoring of Rule 506 offerings will be the adoption of final rules – also proposed in July – relating to amendments to Regulation D, Form D and Rule 156.[16] I know that you have a session later today during which you will discuss these proposed amendments, and I know, from the comment file, what many of you think. We are considering those comments very carefully. Advancing these important rules, after due consideration of the comments we have received, is another important priority for me in 2014.

Disclosure Reform

As we move to complete our rulemaking in the private offering area, it is important for the SEC not to lose focus on the public markets.

I recently spoke about some of my ideas about disclosure reform[17] and in December the staff issued a report mandated by the JOBS Act that gives an overview of Regulation S-K and the staff’s preliminary recommendations as to how to update our disclosure rules.[18] I have asked the staff to begin an active review of our disclosure rules.

We can all probably identify particular disclosure requirements that we might eliminate or modify, but that is not the kind of review and reform I am primarily focused on – and it certainly is not the kind of thoughtful and comprehensive review that I think our disclosure rules demand. I believe we should rethink not only the type of information we ask companies to disclose, but also how that information is presented, where and how that information is disclosed, and how we can take advantage of technology to facilitate investors’ access to information and make it more meaningful to them.

I have asked the staff to seek input from issuers, investors, and other market participants in 2014 as part of this effort, and I encourage all of you to share your views and ideas. The ultimate objective is for the Commission to improve the disclosure regime for the benefit of both companies and investors.

Vigorous Enforcement in 2014

The agency’s evolution in response to a rapidly changing market is not confined to rulemaking or market oversight. We have also found it necessary to adapt our policies, priorities, and approach with respect to enforcement as well. And no discussion of the SEC in 2014 would be complete without my touching on some of these changes and giving you some idea of what to expect this year. The coming year promises to be an incredibly active year in enforcement, as we continue to vigorously pursue wrongdoers and bring enforcement actions across the entire industry spectrum.

Admissions

As you know, for many years, the SEC, like virtually every other civil law enforcement agency, typically did not require entities or individuals to admit wrongdoing in order to enter into a settlement. This no admit/no deny settlement protocol makes a great deal of sense and has served the public interest very well. More and quicker settlements generally mean that investors receive as much (and sometimes more) compensation than they would after a successful trial – and without the litigation risk or the inevitable delay that comes with every trial. Settlements also can achieve more certain and swifter civil penalties, and bars of wrongdoers from the industry or from serving as officers or directors of public companies – all very important remedies for deterrence and the public interest.

So, why modify the no admit/no deny protocol at all? It is not a new question and one that many of you continue to ask. Even before my arrival as Chair, the Enforcement Division decided to require admissions where parallel criminal or other regulatory cases were brought with admissions.[19] Why? Because admissions can achieve a greater measure of public accountability, which can be important to the public’s confidence in the strength and credibility of law enforcement and the safety of our markets. It is not surprising that there has also been renewed public and media focus on the accountability that comes with admissions following the financial crisis, where so many lost so much.

And it should be no surprise that my views on admissions were formed long before recent events and were shaped by my time as United States Attorney. In the criminal realm, guilty pleas are accompanied by admissions of guilt, which eliminate any doubt about the conduct of the defendant and provide additional accountability for the crime.

As United States Attorney, I made the decision that companies should, in certain circumstances, admit their wrongdoing, even if they were not criminally charged, but where there was a special need for public accountability and acceptance of responsibility. That is why, when I negotiated the first deferred prosecution for a company, back in 1994, I required an admission of wrongdoing, and I brought that mindset to the SEC when I became Chair last April.

After studying and discussing the issue with the staff and my fellow Commissioners, I decided to modify the SEC’s protocol to demand admissions in an expanded category of settlements. That change occurred in June and you have begun to see it play out in a number of cases. When we first announced the change in approach, we outlined broad parameters of the types of cases in which we will consider requiring admissions as part of any settlement. And now, we have a number of cases with admissions that illuminate those categories.

So, for example, we have said we will consider admissions in cases involving egregious conduct, where large numbers of investors were harmed, where the markets or investors were placed at significant risk, where the wrongdoer poses a particular future threat to investors or the markets, or where the defendant engaged in unlawful obstruction of the Commission’s processes. Just last month, we required three brokerage subsidiaries to admit to a scheme in which they repeatedly deceived their customers about their compensation on securities transactions – and in some cases even provided falsified trading data to their customers in an effort to avoid detection.[20] The conduct was egregious and harmed many investors, thereby justifying admissions.

Similarly, we demanded that a bank admit that its internal controls were deficient in failing to detect and prevent, and then disclose to its board and investors, massive losses by some of its traders, thereby putting millions of shareholders at risk and resulting in inaccurate public filings.[21]

To be sure there was no ambiguity about the misconduct of a defendant who was continuing to deal with investors, we required a hedge fund adviser to not only agree to a bar from the securities industry for five years, but to also admit to misuse of more than one hundred million dollars of fund assets in order to pay his personal taxes through a personal loan that was not timely disclosed to investors.[22]

As we go forward in 2014, you will see more cases involving admissions. When and how we decide to require admissions will continue to evolve and be subject to further articulation in the cases we bring and as we discuss it publicly.

Financial Fraud

This year will likely see us complete our docket of major investigations stemming from the financial crisis. As we do, our focus and resources will naturally turn to other priorities. This shift has already begun.

Last fall, the Enforcement Division formed a Financial Reporting and Audit Task Force. This dedicated group has very talented accountants and attorneys who will broaden and thereby improve the way we look at financial reporting misconduct.

The Task Force is pursuing a number of goals, including building a deep understanding of the state of financial reporting fraud – not just why it happens, because there is plenty of learning on that question, but how it happens and in what specific areas.

As you would expect, we look closely at the auditors in every financial reporting case, but we are also closely focusing on senior executives for possible misconduct warranting charges. The message is that critical accounting issues are the responsibility of all those involved in the preparation and review of financial disclosures.

Market Integrity

As I have discussed, technology has worked a fundamental shift in the way securities are priced and traded – a shift that has only accelerated in the past several years. In the last two years, we have tried to send a strong enforcement message to the exchanges and alternative trading systems that play critical roles in securities market transactions that they must operate fairly, within the rules and with a close eye on their responsibilities to safeguard their technology. Cases have been brought against an exchange that inadequately tested its IPO systems and was therefore unable to handle a highly anticipated IPO and then did not follow its own rules in the aftermath;[23] against a different exchange for compliance failures that gave certain customers an improper head start on trading information;[24] and against a dark pool for failing to protect the confidential trading information of its subscribers.[25]When technology presents new opportunities for innovation, changes must be deployed responsibly, after careful testing, and within the rules and parameters of the trading environment. Market structure integrity actions will remain a priority in 2014.

As you will hear when Andrew Ceresney, our Director of Enforcement speaks to you over the coming days, there are many other enforcement priorities for 2014 that you should be aware of. These include, but are by no means limited to, FCPA, insider trading, and microcap fraud. It will, in short, be a very busy year in enforcement.

Conclusion

I hope I have given you a sense of some of the things we will be doing in 2014 and a flavor for how dramatically and vibrantly things have changed at the SEC as our world and markets have changed. There is more, of course, we will be doing and considering in the coming year, both on our own initiative and as required by the Dodd-Frank and JOBS Acts – equity market structure, duties of brokers-dealers and investment advisers, the management and responsibilities of clearing agencies and credit rating agencies, Dodd-Frank executive compensation, target date funds, systemic risk issues, broker-dealer financial responsibility, and more.

It is a constant, but always exciting, challenge to keep pace and indeed to accurately see around the next corner for the newest market developments or another innovative variant of, or new venue for, fraud. I now am privileged to have an up-close and personal role in all of this. And it is my strong conviction that the women and men of the SEC are, as has always been true, more than up to these challenges. As Alan Levenson said in January 2003, almost eleven years to the day when he spoke about the strength of the SEC: “It was the creativity of the staff… [they] had a drive and a genuine interest in protecting investors and the public interest….”[26]The challenges and tools change, but creativity, drive, and commitment to the mission continue unchanged at the SEC in 2014. Alan Levenson, I think, would be very proud.

Thank you for listening.

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[1] “Odd Lot Rates in a Post-Transparency World,” Data Highlight 2014-01 (Jan. 9, 2014), available at http://www.sec.gov/marketstructure/research/highlight-2014-01.html.

[2] The MIDAS web site and interactive tools are available athttp://www.sec.gov/marketstructure/.

[3] SEC Chair White Statement on Meeting with Leaders of Exchanges (Sept. 12, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539804861.

[4] Regulation Systems Compliance and Integrity, Release No. 34-69077 (Mar. 8, 2013) [78 FR 18083 (Mar. 25, 2013)], available athttp://www.sec.gov/rules/proposed/2013/34-69077.pdf.

[5] Risk Management Controls for Brokers or Dealers with Market Access, Release No. 34-63241 (Nov. 3, 2010) [75 FR 69792 (Nov. 15, 2010)], available athttp://www.sec.gov/rules/final/2010/34-63241.pdf.

[6] For an interactive chart of the current state of the regulatory regime for security-based swaps, see http://www.sec.gov/swaps-chart/swaps-chart.shtml.

[7] For the list of proposals issued by the Commission and the associated comment files, see Comment Periods for Certain Rulemaking Releases and Policy Statement Applicable to Security-Based Swaps Proposed Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, Release No. 34-69491 (May 1, 2013) [78 FR 30800 (May 23, 2013)], available athttp://www.sec.gov/rules/proposed/2013/34-69491.pdf.

[8] Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants, Release No. 34-69490 (May 1, 2013) [78 FR 30967 (May 23, 2013)], available athttp://www.sec.gov/rules/proposed/2013/34-69490.pdf.

[9] Money Market Fund Reform, Release No. IC-29132 (Feb. 23, 2010) [75 FR 10060 (Mar. 4, 2010)] (see Section I, “Background”), available athttp://www.sec.gov/rules/final/2010/ic-29132.pdf. As a study conducted by staff in the SEC’s Division of Economic and Risk Analysis (DERA) stated, “[N]o fund would have been able to withstand the losses that The Reserve Primary Fund incurred in 2008 without breaking the buck, and nothing in the 2010 reforms would have prevented The Reserve Primary Fund’s holding of Lehman Brothers debt.” Response to Questions Posed by Commissioners Aguilar, Paredes, and Gallagher, a report by staff of the Division of Risk, Strategy, and Financial Innovation, “Executive Summary” (Nov. 30, 2012), available at http://www.sec.gov/news/studies/2012/money-market-funds-memo-2012.pdf.

[10] Money Market Fund Reform; Amendments to Form PF, Release No. IC-30551(Jun. 5, 2013) [78 FR 36833 (Jun. 19, 2013)], available athttp://www.sec.gov/rules/proposed/2013/33-9408.pdf.

[11] Asset-Backed Securities, Release No. 33-9117 (Apr. 5, 2010) [75 FR 23328 (May 3, 2010)], available at http://www.sec.gov/rules/proposed/2010/33-9117.pdf and Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional Requests for Comment, Release No. 33-9244 (Jul. 26, 2011) [76 FR 47948 (Aug. 3, 2011)], available at http://www.sec.gov/rules/proposed/2011/33-9244.pdf.

[12] Credit Risk Retention, Release No. 34-70277 (Aug. 28, 2013) [78 FR 57927 (Sept. 20, 2013)], available at http://www.sec.gov/rules/proposed/2013/34-70277.pdf.

[13] To make these estimates, staff from DERA used the Securities Data Corporation’s (SDC) New Issues database (Thomson Financial), the Mergent database, and Asset-Backed Alert to obtain data regarding public and private offerings. Data on Rule 144A offerings and asset-backed securities offerings was available for part of 2013 and the estimates were made by extrapolating through the end of 2013. Data on Regulation D offerings was collected from all Form D filings (new filings and amendments) in EDGAR. Subsequent amendments to a new Form D filing were treated as incremental fundraising. If an issuer filed only amended filings in 2013, and those reference a pre-2013 sale date, these amended filings were treated as incremental fundraising.

[14] Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33-9415 (Jul. 10, 2013) [78 FR 44771 (Jul. 24, 2013)], available at http://www.sec.gov/rules/final/2013/33-9415.pdf.

[15] Crowdfunding, Release No. 33-9470 (Oct. 23, 2013) [78 FR 66428 (Nov. 5, 2013)], available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf and Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, Release No. 33-9497 (Dec. 18, 2013) [79 FR 3926 (Jan. 23, 2014)], available at http://www.sec.gov/rules/proposed/2013/33-9497.pdf.

[16] Amendments to Regulation D, Form D and Rule 156, Release No. 33-9416 (Jul. 10, 2013) [78 FR 44806 (Jul. 24, 2013)], available athttp://www.sec.gov/rules/proposed/2013/33-9416.pdf. See also Re-opening of Comment Period for Amendments to Regulation D, Form D and Rule 156, Release No. 33-9458 (Sept. 27, 2013) [78 FR 61222 (Oct. 3, 2013)], available athttp://www.sec.gov/rules/proposed/2013/33-9458.pdf.

[17] The Path Forward on Disclosure, remarks at the National Association of Corporate Directors Leadership Conference 2013 (Oct. 15, 2013), available athttp://www.sec.gov/News/Speech/Detail/Speech/1370539878806.

[18] Report on Review of Disclosure Requirements in Regulation S-K (Dec. 2013),available at http://www.sec.gov/news/studies/2013/reg-sk-disclosure-requirements-review.pdf.

[19] Statement by Robert Khuzami (Jan. 7, 2012) available athttp://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1365171489600.

[20] See Press Release No. 2013-266, “SEC Charges ConvergEx Subsidiaries With Fraud for Deceiving Customers About Commissions” (Dec. 18, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540521484.

[21] See Press Release No. 2013-187, “JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges” (Sept. 19, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539819965.

[22] See Press Release No. 2013-159, “Philip Falcone and Harbinger Capital Agree to Settlement” (Aug. 19, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1370539780222.

[23] See Press Release No. 2013-95, “SEC Charges NASDAQ for Failures During Facebook IPO” (May 29, 2013), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575032.

[24] See Press Release No. 2012-189, “SEC Charges New York Stock Exchange for Improper Distribution of Market Data” (Sept. 14, 2012), available athttp://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171484740.

[25] See Press Release No. 2012-204, “SEC Charges Boston-Based Dark Pool Operator for Failing to Protect Confidential Information” (Oct. 3, 2012), available athttps://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171485204.

[26] Securities and Exchange Commission Historical Society, Interview with Alan B. Levenson Conducted on January 14, 2003, by Richard Rowe, pp. 5-6, available athttp://3197d6d14b5f19f2f440-5e13d29c4c016cf96cbbfd197c579b45.r81.cf1.rackcdn.com/collection/oral-histories/levenson011404Transcript.pdf .