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: Jim Hamilton's World of Securities Regulation

By Jim Hamilton

SEC Chair Schapiro Details Reforms Taken in Response to Senate Report

In a letter to Senator Charles Grassley, SEC Chair Mary Schapiro detailed actions taken by the Commission in response to a Senate report vetted by Senator Grassley. According to Senator Grassley, the reforms implemented by the SEC will benefit investors and the market by standardizing procedures, prioritizing resources, increasing the transparency of external Commission communications and internal recusals, establishing guidelines for handling employee complaints and dismissals, protecting whistleblowers inside the agency and recognizing the independence of the SEC ?s Inspector General. In the letter, Ms. Schapiro assured the Senate that she takes very seriously the charge she was given to restore the SEC?s reputation and credibility as the investors? watchdog

The Senate report recommended that the SEC draft a comprehensive manual of procedures for conducting enforcement investigations. In response, the SEC published its Enforcement Manual to provide guidelines for SEC enforcement staff. The Senate report said the SEC lacked objective criteria for setting staffing levels and no mechanism for designating a case as critically important. In response, the Enforcement Division drafted a policy addressing the criteria used to assess quarterly the most significant investigations.

The report also urged the SEC to issue written guidance requiring supervisors to keep complete and reliable records of all external communications regarding any investigation. As a result, the Enforcement Manual strongly encourages senior officials to include staff members when engaging in material external communications. When such inclusion is not feasible, the senior official must memorialize the communication within a reasonable period of time.

In a bill that has passed the House and Senate, Congress would give the SEC additional resources, including more resources specifically for the Inspector General. The House recently passed the Senate bill with some amendments; and House version is now awaiting action by the full Senate.

According to Senator Grassley, Congress has dropped the ball with SEC oversight, and even the former Inspector General failed in his important role. But happily, he noted that the current Inspector General for the SEC has demonstrated a commitment to policing the agency and identifying problems. It is thus appropriate that the pending legislation give new funding for the SEC Inspector General. The overall bill, the Fraud Enforcement and Recovery Act (S.386), is being debated by the Senate this week.

Full post as published by Jim Hamilton's World of Securities Regulation on May 13, 2009 (boomark / email).