On January 10, 2009, SEC Commissioner Luis A. Aguilar delivered a speech entitled, "Empowering the Markets Watchdog to Effect Real Results" in which he presented some specific "internal shifts in policy" that he would like to see made immediately. The speech was notable for the unusually candid recognition by Aguilar of several SEC policies and practices that do not appear to be working as intended, and for his concrete suggestions on how to shift certain of these policies and practices for the better.

Looking back at his first speech as an SEC commissioner several months ago (available here), Aguilar stated:

In my first speech after being appointed, I expressed concern with the potential drop off in large investigations and the dramatic decline in the past few years in the amount of penalties that the Commission seeks and collects. Recently, it has been nearly impossible to turn on a TV or pick up a newspaper without seeing headlines criticizing the SEC and questioning whether the SEC is committed to aggressive and robust enforcement. In my experience, this is not an accurate perception of the dedication of the SEC's staff. However, there is no question that the time is now for the SEC to answer its critics by demonstrating its commitment to be the markets watchdog. To effectively do this - the SEC should undertake some internal shifts in policy and practice.

Aguilar suggested that certain policy and practice changes should occur immediately. In his view, he said, the SEC should:

* eliminate its penalty pre-authorization pilot program;* rebuild and empower its enforcement staff; and* concentrate its resources on cases with greater reach into the market.

Aguilar described the penalty pre-authorization program as a "Pilot Program" that the Commission "adopted a in 2006 to require the SEC enforcement staff to seek prior Commission approval before negotiating penalties with corporations. Previously, SEC attorneys could enter into settlement talks without obtaining permission in advance. The process worked well for over 70 years."

Aguilar stated that in his view, requiring Commission pre-approval of corporate penalties has limited the discretion of the dedicated enforcement staff, and led penalty amounts in SEC cases against corporate issuers to plummet. He added that "I strongly believe that this penalty pre-approval pilot program should be ended immediately. I've recommended as much to the President-Elect's Transition Team and will ask the SEC's new Chair to make it his or her first official action."

Aguilar also presented some interesting statistics with respect to the makeup and resources available to the Enforcement Division. Notwithstanding the intention of Sarbanes-Oxley, he said, "by 2006 staff turnover was at its highest level in five years and Enforcement groups, normally composed of 15 lawyers, often had only 7 or 8 lawyers during those years and are slowly being built back to the former numbers. The total number of attorneys able to investigate cases has decreased by 10% from 654 in 2005 to just 594 in 2008."

Aguilar suggested that in addition to hiring and staffing at full capacity, the enforcement staff should be be afforded a streamlined process for the approval of "formal orders" (the Enforcement Division's requests to formalize investigations and issue subpoenas), a process which he said currently faces a logjam.

Aguilar also reiterated his concern expressed several months ago regarding the potential drop off in large investigations and the dramatic decline in the past few years in the amount of penalties the Commission seeks and collects. He stated his strong desire for the Commission's enforcement staff to focus resources on cases involving the most egregious behavior with broad market effect and to be able to clearly send a message of deterrence.

Read Commissioner Aguilar's January 10, 2009 speech

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