Today's SEC is not the same agency that failed to protect investors in the years leading up to the Great Recession, according to Andrew Ceresney, director of the commission's Division of Enforcement.
In an exclusive interview with Financial Planning, Ceresney spoke of how the SEC’s enforcement capabilities have evolved since the financial crisis, which threatened large banking institutions, caused millions to be evicted from their homes, wiped out trillions of dollars in consumer wealth and uncovered Bernie Madoff's massive Ponzi scheme.
Since 2008, the SEC has created a new whistleblower program, increased its data analytics skills and built cooperative relationships with criminal authorities around the country to bring more cases, Ceresney says.
His comments come after recent Senate
As he does before speaking publicly, Ceresney, who worked for White when she was the U.S. Attorney for the Southern District of New York and followed her to the law firm Debevoise & Plimpton before joining her at the SEC in 2013, said he was speaking on his own behalf and not for the commission. The following is an edited transcript of the conversations, including FP's parenthetical explanations.
FP: Is the commission is in better shape to detect and stop fraud than it was in 2008?
AC: Oh, I think definitely the answer is yes. We've made major changes in the Enforcement Division since then, as well as in the commission more generally.
For example, we've created the Office of Market Intelligence that receives tips, complaints and referrals and makes sure they are assigned appropriately. We have a whistleblower office, obviously, and that is a new program. We've created specialized units with in-house experts that allow us to be smarter about what is going on in in the markets. The exam staff has made huge changes to the way they operate. We've got(ten) much better in terms of using data and analyzing data. I think, in general, we're just more sophisticated and we've done some things to set ourselves up to detect that sort of misconduct.
FP: How does this beefed-up detection process work?
I think we'll have more cases involving disclosures on fees and expenses. That's an area of great focus.
AC: If you get five different tips from five different investors about issues regarding a particular investment, you now are going to put those together, and you are going to be able to track those. Or, you are going to get a particular whistleblower tip, and it will go to the particular team. They are going to see trends that are going on. You are going to have experts who are going to be able to analyze that information and use data to try to understand what is going on.
Each one of those areas brings important tools to detect that conduct.
What are some recent SEC cases that advisers should pay attention to?
AC: An example was the
Then there was the
Second, I think the private equity cases, which I mentioned before, have been very significant. I think those have had a tremendous impact on the industry.
I think we'll have more cases involving disclosures on fees and expenses. That's an area of great focus.
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After more than three-and-a-half years at the helm, Mary Jo White made incremental moves to expand advisor exams, but did not move on structural reform or implement a uniform fiduciary standard, as many advocates had hoped.
November 16 -
While it’s early in the process, a number of names are being floated as possible contenders.
November 14
I'd also point you to our cases in the performance advertising area and, in particular, the cases that come out of the F-Squared Investments
Finally, I'd point to cases such as
FP: Any advice you have for financial advisers to help them comply with SEC oversight?
AC: They should consider self-reporting issues if they find them. We will give significant credit to firms who self-report to us and, so, I think firms should consider that. They should understand that we are going to be aggressive regarding issues in what is a heavily regulated area, and so they should create compliance systems to try to address these issues and give legal and compliance an important role.
FP: How does the commission use data today in its enforcement?
AC: We have done a great job of creating analytical tools that allow us to take advantage of that data both to detect misconduct as well to as to advance our investigations.
So for example, with regards to insider trading, we have billions of lines of blue sheet data (information that tracks trading activity) and we've created tools that allow us to see patterns that suggest insider trading activity
We've also taken advantage of trading data that we've been able to collect on the exam side to allow us to see patterns for things like churning and sales of complex products that may be being sold improperly. We've used data in financial reporting to help detect aberrations that may suggest potential misconduct.
Some of this we have done in conjunction with other divisions, like the Division of Economic and Risk Analysis.
We've also created our own
FP: How has the role of enforcement changed since you've headed up the division?
AC: We are going into areas that we haven't necessarily gone into in the past, so things like market structure, our cases against alternative trading systems and exchanges that I mentioned earlier. Those are relatively new developments that have really increased over the last few years.
We are much more active with our cases in the public finance area.
And our Foreign Corrupt Practices Act
It also used to be that most of our cases on the criminal side were with the Southern District of New York and we still obviously do many, many cases with them, but we do a lot more cases now with other U.S. attorneys offices around the country, as well as main Justice (the U.S. Department of Justice's main headquarters in Washington D.C.).
FP: Why the jump in cases outside of New York?
AC: One is I think those offices are just more interested in doing these cases, thanks to a general increased focus on the importance of white collar prosecutions. Second, we've built increased partnerships with offices around the country. Our regional offices have strong relationships with the prosecutors' offices in their regions and I think that is a relatively recent phenomenon.
FP: What is driving this increased focus on white-collar prosecutions?
AC: I think the financial crisis certainly added to that, but, over the past 10 or 15 years, since Enron and WorldCom (publicly traded companies that perpetrated fraud on the billions of dollars scale), all those things have just increased the focus on white-collar crime.
FP: What part is the commission playing in this increased activity?
AC: We in the commission have been more aggressive in the settlements we've been seeking, and we've gone after more individuals who are more likely to litigate. We also have been more aggressive in terms of bringing cases now where the evidence is more challenging.
I think advisers need to be careful about disclosing all revenue that they receive, the sources of all revenue that they receive.
I'll give you an example from cases we've litigated over the past two or three years. There's the Payton
FP: What do you see as the biggest accomplishments of the Division of Enforcement in the 3.5 years since you became its chief?
AC: It's been a pretty active time. In terms of achievements, we've solidified ourselves as a strong, aggressive, but fair regulator. We've had record years both in terms of enforcement actions as well as monetary recoveries over the last couple years. We're on target this year to at least equal those
We've brought some very high quality and important cases. In terms of prominent cases, we've brought the
We brought the
We've brought the insider trading
But we've also brought lots of cases that have a huge impact on the industry and have changed industry behavior.
For example, the MCDC (Municipalities Continuing Disclosure Cooperation initiative) self-reporting
All of that has had a very significant effect on the industry.
I'd cite two other things. One is litigation. We have made it clear that we are very experienced and difficult adversaries. Whenever we go into court, we put our best foot forward. I think there has been an increase in litigation over the past few years and I think we've risen to that challenge.
And, then, finally, in terms of the use of data, the last three years have seen just a huge proliferation in the availability and use of data.
FP: What do you most like about your job?
AC: It's a great job. You have really a wide view of all that's going on in the enforcement area, which is just an amazing perspective. There are great investigations, many of which we do on our own, but some of which we work together with the criminal authorities. We have really talented people who just have great expertise but are also extremely committed to the mission of protecting investors.
I think the other part about of the job that I enjoy is the management.
I have 25 or so people who report to me. Each one of those has a number of people reporting to them and managing the division, which is more than 1,300 people nationwide, which is a great challenge but also very interesting.
