Securities Law

SEC Shines Tarnished Top-Cop Badge, Looks to DOJ for Post-Madoff Playbook

Embarrassed by lapses that allowed Bernard Madoff to operate a record-breaking Ponzi scheme for years despite warnings that his claimed hedge-fund earnings had to be fraudulent, officials at the Securities and Exchange Commission are shining the federal agency’s tarnished top-cop badge.

Seeking to enhance the SEC’s reputation as a tough policer of the nation’s securities laws, they have been looking to the U.S. Department of Justice for ideas and will follow a prosecutorial model in implementing planned changes in the agency’s enforcement division, reports the DealBook blog of the New York Times.

Among them: Specialized units will focus on specific areas, such as market abuses, the Foreign Corrupt Practices Act and municipal securities and public pensions. And deferred prosecution and immunity agreements will be more readily available to those who provide substantial cooperation with investigations, the newspaper explains in a White Collar Watch post written by professor Peter Henning of Wayne State Law School.

However, this new structure will only be as effective as the SEC people who implement the rules, and the agency has been struggling for years with a high staff turnover problem, Henning points out. Plus, civil enforcement mechanisms inherently have less of a deterrent effect on wrongdoers than the power of the criminal justice system.

“The reorganization of the enforcement division is certainly necessary if the SEC wants to overcome the black eye that Mr. Madoff gave it,” he writes. “Whether this is just rearranging deck chairs on the Titanic remains to be seen. Much like an NFL draft, the effect of these changes will not seen for three to five years, when the financial crisis has faded from view and Congress quite possibly becomes less amenable to tough regulation of the markets.”

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