On Thursday, October 18, 2012, SEC Commissioner Luis Aguilar delivered an interesting speech on "Taking a No-Nonsense Approach to Enforcing the Federal Securities Laws." Commissioner Aguilar's remarks came at the inaugural Securities Enforcement Forum in Washington, D.C.

Commissioner Aguilar argued that to be effective, the SEC's enforcement program should focus on three key objectives:

Individual accountability for misconduct;

Achieving maximum deterrence by using available sanctions to effectively deter and punish misconduct; and 

Deterring and punishing recidivists

Individual accountability

Commissioner Aguilar noted that, to date, the SEC has brought actions against 57 CEOs, CFOs, and other senior corporate officers for misconduct related to the financial crisis. Still, he said, there is a significant amount of public concern that not enough has been done to hold individuals accountable for the financial crisis, and challenged the agency to address this:

Are we creatively and aggressively looking for ways to hold every responsible individual, regardless of title, accountable for violations of the federal securities laws in an entity? And more importantly, is the SEC sending the wrong message in those cases when it charges an entity with wrongdoing without charging an individual for misconduct? The fact remains that corporations and other business are led by men and women, who are ultimately responsible for their actions. When an entity is charged with a violation of the federal securities laws, it is clear that there are human beings who are responsible for the misconduct.

Commissioner Aguilar stated that in all enforcement investigations, the staff must have a laser-like-focus on any potential misconduct by senior officials, and not just the "flunkies below" or the entity itself.

Achieving "Maximum Deterrence"

Commissioner Aguilar advocated the use of permanent officer and director bars, collateral industry bars, and "meaningful monetary penalties." He stated that during his four years as a Commissioner, he has observed that officer and director bars are one of the sanctions that defendants fear the most. Indeed, it can be "more devastating than a monetary fine" by requiring a change in the defendant's career. He pointed out that Section 925 of the Dodd-Frank Act now authorizes the SEC to obtain collateral bars, as well, which can bar a defendant from association with brokers, dealers, municipal securities dealers, municipal advisors, transfer agents, or nationally recognized statistical rating organizations. Collateral bars, he said, can "prevent fraudsters from migrating from one segment of the financial industry to another to inflict greater harm."

Fighting Recidivism

Commissioner Aguilar also emphasized the need to combat recidivism by raising the stakes. One new idea, he suggested, would be to impose post-sanction monitoring on recidivist violators, which could include "unscheduled office visits; access to phone records, bank records, and state and federal income tax returns; and submission of periodic self-reports by the defendant."

Finally, he threw his support behind a pending bill called the Stronger Enforcement of Civil Penalties Act of 2012, which I wrote about at length in a column earlier this month.  The bipartisan "SEC Penalties Act" would authorize the SEC to issue penalties up to three times a defendant's gross pecuniary gain or as much as the losses incurred by investors as a result of the violation. In addition, it would triple the penalty cap for recidivists.

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