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SEC chief speeding penalty process for violations

February 07, 2009|Associated Press

WASHINGTON — The new head of the Securities and Exchange Commission is ending a practice that she said had slowed the agency's enforcement efforts against corporate wrongdoing.

In her first public address as SEC chairwoman, Mary Schapiro said Friday that she was ending a two-year policy requiring agency enforcement attorneys to get approval from the commissioners before negotiating fines and penalties with companies accused of violations.

That practice "just sends the wrong message" and has caused delays, Schapiro said. Ending it is among the steps she said she was taking to revitalize enforcement efforts and bolster investor protection.

But the private sector also has to do its part to help restore investor confidence, she told a gathering of securities lawyers and staff members.

"There needs to be a new era of responsibility on Wall Street and throughout our markets to ensure that wrongs don't occur in the first place," Schapiro said. "The sooner that Wall Street works to repair its own problems, the sooner investors will once again find the confidence to invest in what should be the finest markets in the world."

Schapiro, named by President-elect Barack Obama in December to head the SEC, was chief executive of the securities industry's self-policing body, the Financial Industry Regulatory Authority. She also served as chairwoman of the Commodity Futures Trading Commission in the mid-1990s, and before that as an SEC commissioner for six years.

She takes the SEC's helm at a time when it is being called on to help restore investor confidence shattered by the worst financial crisis in more than 70 years. The SEC has faced heavy and unrelenting criticism over its failure to discover the $50-billion Ponzi scheme allegedly run by money manager Bernard Madoff -- despite credible allegations against him being brought to the agency over the course of a decade.

Five high-ranking SEC officials, including the agency's enforcement director, Linda Thomsen, received a tongue-lashing this week from lawmakers who accused them of impeding their inquiry into the SEC's breakdown over the Madoff affair.

It was a far friendlier reception Friday for officials such as Thomsen, who cited a list of recent high-profile enforcement cases by the agency.

Schapiro's announcement that the more formal approval process for penalties was being shelved drew applause from the audience. She outlined other steps to speed enforcement efforts at the agency. Those include changes to the process for enabling subpoenas to be issued in investigations and improvements in the handling of tips and whistle-blower complaints regarding fraudulent activity.

"Anything you do to quicken the process should be good for investors," said Larry Ellsworth, an attorney at Jenner & Block who formerly worked in the SEC's enforcement trial division.

Schapiro also said she would work to improve the effectiveness of the SEC's process for inspecting brokerage and investment firms.

The agency is likely to take further action to address the conflicts of interest among the big credit-rating firms and to give shareholders a greater say in who sits on company boards. A new investor advisory committee will be formed to gather views from parties outside the traditional power corridors of Wall Street and Washington, Schapiro said.

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